Japan’s Government Pension Investment Fund has significantly expanded its ability to deploy large amounts of capital in real estate, now it has received regulatory clearance to participate in funds and other limited partnership schemes for alternative assets.
Previously, the world’s largest pension fund, with ¥162 trillion ($1.5 trillion; €1,25 trillion) of September 30, had been able to invest in alternative assets through funds of funds and mutual funds because of statutory limitations.
This will markedly help the pension fund’s efforts to increase its allocation towards alternative assets, said GPIF spokesperson Naori Honda, without being able to specify on real estate.
“Last year, we began to invest in [fund of funds] schemes. But they are not so common and popular in the alternative [assets] investment world. By introducing LP-style investments, we can participate in investments in a common way,” said Honda.
GPIF is one of the largest investors in Japanese government bonds, which are “yielding close to nothing or minus,” according to one Japan-focused industry source. That has led the pension fund and other major institutional investors such as Japan Post Insurance to increase their allocations to alternative assets, particularly overseas.
“Especially for these large institutional investors, the Japanese market for real estate is too small. They need to have allocations to international markets as well. GPIF’s LP move is in line with that direction,” the source said.
According to Honda, GPIF will now start a process leading to a call for applications from alternative asset managers for limited partnerships. A similar call for fund of funds asset managers was launched in April 2017.
As part of the process, the pension will need to first bolster its investment staff. “We will look for investment opportunities through limited partnerships after we are ready in terms of our organizational capacity such as human resources,” said Honda.
GPIF is understood to be recruiting real estate staff. In February 2017, the pension fund announced Hideto Yamada as the new head of real estate.
“Yamada has experience from markets like London and New York so that international approach will be beneficial when GPIF will build their international portfolio of real estate investments,” one source told PERE.
By year-end 2017, GPIF only had 0.1 percent of AUM allocated to alternative assets. According to Honda, the new cap allows allocation increasing up to 5 percent over time. At its current AUM, the deployment potential could be up to $75 billion across all alternative asset classes.
Mainland Chinese and Taiwanese insurance companies became among the active property investors a couple of years ago in markets like London and New York. Given their larger size, GPIF and Japan Post Insurance should have an even more significant impact on such markets, the source said. “But they do not want to become the price changers, so they will try to be low-key when entering the real estate markets,” he said referring to investments being made indirectly and discreetly through asset managers.
You can hear direct from Hideto Yamada when he keynotes the PERE Investor Forum: Tokyo on 27 September. Find out more on the event website.