GPIF considers move into alternatives

The $1.4tn Japanese public pension fund is commissioning a study analysing how it should invest in private equity, 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 private equity, infrastructure and real estate 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 JPY110 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, which is very encouraging for the private equity community here and overseas.”

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. 

The source said the impact would parallel that in Korea, which has seen a huge increase in private equity activity since its pension funds were allowed to invest in alternatives. “Look at Korea. The public pensions have been the biggest sponsor and they have been growing the private equity industry there.”

Michael Chae, managing director at PineBridge Investment, agreed. When asked the potential impact for GPs in Japan he said, “Very big. [GPIF] manages over $1 trillion – 1 percent allocation to private equity would be huge.”

GPIF’s move into alternatives will also encourage other potential LPs to invest in the asset class. 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.

PEI will explore the rising appetite of Japanese investors for global alternatives allocations at our Global Alternative Investment Forum: Japan on 17 April 2013 in Tokyo.