Japan's GPIF considers move into real estate

The $1.4 trillion Japanese public pension fund is commissioning a study analysing how it should invest in alternatives, including real estate and infrastructure.

Japan’s Government Pension Investment Fund will soon select one of 13 bidders to research how the public pension plan should implement alternative assets, including real estate, private equity and infrastructure into its investment strategy, according to an industry source. 

GPIF had previously done a product study on alternative investment classes, but this is “one step further” for the ¥110 trillion (€1.09 trillion; $1.4 trillion) pension fund in Japan, which currently has no investment in alternatives, according to the source.

He said, “This time they are more focused on the implementation scheme.”

Given the size and influence of GPIF, investing in alternative assets could give a significant boost to the difficult fundraising environment in Japan, exacerbated by a lack of domestic LPs. 

GPIF’s move into alternatives will also encourage other potential LPs to invest in the asset class. Sister publication PE Asia's source said, “Unless GPIF invests in alternatives, [other public pensions] won’t do so. Once GPIF does it, there will be others to follow.”

Most institutional investors in Japan have excluded alternative assets from their investment strategies due to high risk and political sensitivities. “Japan’s public pensions tend to be very conservative and the bulk of their investments have been in domestic bonds. GPIF has about two-thirds of its investment in government bonds,” the source explained. 

Japan has been opening up to alternative assets as the old demographic puts stress on the pension system. “Quite a number of [politicians and public figures] have advocated that GPIF should be stepping toward being more like a sovereign wealth fund.” 

However, some GPs are skeptical about how quickly they will see any capital. One GP that invests in Japan said, “GPIF is a very conservative investor and only recently started investing in listed equities in the emerging markets. I suspect it will take them a while before they start investing into private equity.”

Regardless of the time frame, GPIF is ultimately likely to commit to alternatives. “In what form they will [invest] is uncertain, it will still take one to one-and-a-half years to launch the programme, but the chance is quite high,” the source said.