Tokio Marine, the Tokyo-based gatekeeper to some of Japan’s most important institutional investors, has set an aggressive growth strategy for Europe that could see it add up to 10 new managers in the region to invest its capital.
Shinji Kawano, the head of overseas investment at Tokio Marine Asset Management, which orchestrates the organization’s real estate investing activities, told PERE it was seeking to double its manager relationships in the region by the end of next year.
“We are trying to visit Europe more,” Kawano said, adding he or his colleagues travel there about once a month on average these days. “The key motivation is to fund more, good, local managers.”
Tokio Marine Property Investment Management started its overseas investment program in 2013 via a vehicle called Tokio Marine Core Property Fund counting its parent Tokio Marine and Nichido Fire Insurance among its underlying investors. According to PERE’s prior reporting, it has has backed global managers including CBRE Global Investors, AXA Investment Managers – Real Assets and Invesco Real Estate. To assist it in its manager selection, the firm appointed Cleveland-based investment and advisory firm The Townsend Group.
However, Kawano said Tokio Marine would look to explore “the next tier of managers,” in conjunction with Townsend, and is hoping to receive increased visits from managers in the region. He said managers with which Tokio Marine would invest could expect ticket sizes of between €10 million and €100 million.
The strategy comes as the firm switches its overseas emphasis from the US to Europe amid concerns of the late cycle in core markets stateside and increasing hedging costs. Kawano, who has grown a team from three executives to eight since 2013, said where currency costs would set the firm back as much as 1 percent on returns three years ago, that number was more like 3 percent today, making certain investments stateside less appealing on a relative basis.
Japanese outbound capital is a topic of increasing relevance in international real estate markets today. The country’s institutional investors have largely been absent from the markets but over recent years have started to mobilize investment programs for the asset class, hire investment professionals and, lately, mandate more managers to deploy their capital.
Most notably, the world’s biggest pension fund, the Government Pension Investment Fund, which controls $1.4 trillion of assets, appointed both a gatekeeper for real estate, Asset Management One, and a real estate manager, CBRE Global Investment Partners, to source its first international outlays.
Other institutions also are in the early throes of establishing an overseas market presence and certain onlookers believe a ramp up in investing activity can now be expected in the short term. Han Khim Siew, deputy managing director for the advisory arm of French property firm BNP Paribas Real Estate, predicted a “massive rush” of Japanese investment in Europe could happen as soon as next year’s Brexit arrangements are finalized.
He said: “We’ve seen them actively bidding on things over the last 12-18 months, and in the last six to nine months, [we’ve seen] this activity go up. I can see a massive rush to start post-Brexit to maybe the following 12 months.”
Any surge would come from an extremely low base. According to Real Capital Analytics, the direct property transactions data provider, this year has already seen an upswing in Japanese investment, but from negligible numbers the year before. RCA recorded $376 million of deals in Europe in the first six months of 2018 versus just $66 million in 2017 and $39 million in 2016. Meanwhile, stateside, RCA recorded $373 million in H1 2018 versus a more sizeable $2.7 billion in 2017 and $3 billion in 2016.
It is important to note, however, that most outbound investment by Japanese investors has been via third-party managers, as in the case of Tokio Marine, and that investment is more difficult to trace.
Kawano and Siew Khim are among a five-strong panel at this year’s EXPO Real focused on the Japanese market and on outbound capital. The session, which will be held Tuesday, will be moderated by PERE senior editor Jonathan Brasse.