How Japan Post Insurance will deploy its next $7bn in alternatives

Japan Post Insurance has a relatively new alternatives programme, having established its alternatives unit in April 2017. With a team of eight investment professionals in its alts team, the $700 billion insurer has designed an investment plan that would deploy as much as 1.5 percent of its total assets under management – about $10 billion – in private equity, real estate, infrastructure and hedge funds by 2020.

In less than two years, the insurer has invested about $3 billion of its target allocation to alternatives, we take a look at how it plans to step up deploying the next $7 billion.

Private equity is a priority

While JPI has not officially disclosed exact figures of each sub-asset class of its alternative investment plan, “private equity investment is one of the major sectors”, managing director and head of alternative investments Tadasu Matsuo told Private Equity International.

Read more about why JPI has committed to invest $10 billion in alternatives here.

“Our investment thesis of alternatives is all about diversification, which means diversification of asset classes, geography, vintage and strategy,” Matsuo said. For private equity, that means the whole spectrum – from buyouts and venture capital, to growth and special situations. Meanwhile, diversification of geography means roughly 50 percent will be allocated to US, 30 percent to Europe and 20 percent in Asia-Pacific.

VC and growth investing in Japan are target areas

Private equity in Japan is composed mainly of mid-market players, but as the industry deepens and matures, expect JPI to back corporate venture capital and growth managers, too.

Matsuo told us: “There are some venture capital and growth capital focused firms but that is a small number… Hopefully we will also see the emergence of growth managers in the Japanese market, like in the US or Europe.”

Co-investment is on the roadmap

JPI is in the initial stage of its alternatives mid-term plan, building its portfolio from scratch by working with experienced third-party gatekeepers and advisors. It isn’t in a rush, Matsuo said, and aims to follow a step-by-step approach to develop its programme. In the second stage, or by 2020-21, it “hopes it could be ready make direct fund commitments”. In the third stage, or about seven to 10 years from now, it will set out to do co-investments.

Matsuo is realistic, he noted: “Doing co-investments by ourselves requires a number of experienced staff and speed of execution. If we are not able to start a co-investment programme, then the other alternative is to work with gatekeepers and advisors.”

It plans to staff up

The insurer’s alternatives investment division has grown from eight investment professionals in April 2017 to 13 today. And it expects to hire more in the near future as it develops and constructs its programme, Matsuo said.

For 2019, JPI also plans to have more face-to-face meetings with both domestic and overseas GPs. “Meeting them, getting to know them better, and enhancing communications with them” is a priority this year, he added.