PERE Japan: pensions will invest overseas

The “allergy” that Japanese institutional investors have had to real estate investments is slowly dissipating, a senior investment figure at one Japan’s largest institutions said at today’s PERE Japan Forum.

Shinji Kawano, head of global investment, Tokio Marine Property Investment Management, told delegates at the one-day event in Tokyo, how Japan’s institutions are ready to build on their minimal exposure to the asset class, during a panel figuring investors.

Real estate currently does not figure prominently within Japanese pension funds’ portfolio. The Government Pension Fund (GPIF), Local Government Officials, Pension Fund Association and National Public Service, for examples, figure in the top 40 pension funds worldwide. However, their real estate allocations are negligible, and in some cases, zero.

With reports that GPIF is likely to introduce real estate in its upcoming portfolio announcement, panellists predicted others would follow suit. Kawano said that, when they do, they likely will invest internationally too. He said: “The allergy to real estate investments is getting less year by year. Overseas investments have started becoming attractive.”

Sumitomo Mitsui Banking Corporation is among a handful of firms which has been investing outside Japan for more than three years, and locally for over a decade – $100 million of its $700 million real estate portfolio comprises overseas investments. The allocation is only set to increase, Yasumasa Kai, general manager of its real estate finance department, said. 

“We would like to increase the overseas investment percentage to 50 percent in 3 years to 5 years. The ultimate goal is to diversify the portfolio on the basis of market size of each country,” he said.

ASIN Employees’ Pension Fund has gradually increased its overseas real estate allocation over the years, said Takeshi Ito, senior portfolio manager at the fund. It was led by a need to have “managerial, sectoral, geographical and investment-timing diversification.” Currently, ASIN prefers investing in fund of funds as opposed to a single fund.

Kawano offered words of advice for other investors that might be sitting in the audience. He suggested following a phased approach to making outlays. “If you don’t understand the international real estate market, invest less initially, say ¥500 million to ¥1 billion,” he said. “Once you start you will realize there is not much difference between the domestic and overseas [real estate market].”