Japanese insurer Tokio Marine & Nichido Fire Insurance is seeking real estate debt investment opportunities in Europe amid rising hedging costs for its US investments, Shinji Kawano, general manager for the firm’s alternative investment group, told PERE.
With ¥5.3 trillion ($36.4 billion; €37.3 billion) of assets under management, TMNF has 3.5 percent of its total portfolio, or ¥180.2 billion, invested in overseas real estate, according to PERE data. It is understood the majority of the insurer’s real estate portfolio is invested in US real estate debt and its exposure to European real estate debt currently stands at around ¥10 billion, according to Kawano.
“Since we fully hedge our investments in foreign currency, the change of the currency exchange rate itself does not matter much for us. But rising hedging costs are becoming our challenge,” said Kawano. The Japanese yen has lost more than a fifth of its value this year against the dollar and is currently trading at ¥144 to the dollar. Last month, the widening gap led to the Japanese government’s largest dollar-selling, yen-buying intervention – and first since 1998 – to stabilize the exchange rate.
“Almost all our existing real estate loan exposure is in the US and the dollar is becoming the most expensive currency in terms of hedging. Therefore, we want to diversify our real estate debt portfolio by geography and currency,” Kawano explained. Following its expansion into Europe, the investor will also look into investments in Asia-Pacific over time.
TMNF is also prioritizing geographical diversification over short-term sector diversification, Kawano told delegates at PERE Tokyo last month. “As an LP, to do something new in two or three years is rather difficult. So we are not able to chase after short-term sectoral trends,” he said. While geographical diversification is more important, Kawano would prefer sectors backed by long-term structural changes in each geography.
Meanwhile, the insurer is looking to establish a dedicated bucket targeting high-single-digit to low-double-digit returns for equity investments in real estate core strategies and infrastructure. Currently, alternative investment is divided into “alternative income” and “alternative capital,” respectively. The former aims to achieve a stable income return of high single digits, while the latter aims to achieve a higher capital return above 15 percent.
“Traditional real estate core equity investment does not fit into either of these two and we would like to accommodate that in the third bucket,” he said.