Japan’s Chikyoren sets 5% ceiling for alternatives

The Japanese pension fund could invest over $9bn in private equity, real estate and infrastructure, following the lead of pension giant the Government Pension Investment Fund.

The $185 billion Pension Fund Association for Local Government Officials, or Chikyoren, can put up to 5 percent of its holdings in alternative assets.

The pension fund's investment policy in English was posted on its website on Tuesday revealing the Chikyoren’s target allocation to alternatives. However, its exposure to alternatives will not be a separate allocation but will be part of its allocations to equities and bonds, both domestic and offshore.

The target 5 percent would amount to $9.25 billion of the pension fund’s $185 billion of assets as of 31 March 2015.

As at fiscal year 2015, Chikyoren had a 43.65 exposure to domestic bonds, followed by 22.32 percent to domestic equities, 11.96 percent to foreign bonds, 17.54 percent to foreign equities, and 4.54 percent to short-term assets.

The Chikyoren, one of Japan’s ‘big four’ pension funds manages assets for around 3 million local civil servants. The fund issued requests for proposal for private equity in July last year, almost a year after selecting managers for real estate and infrastructure. The fund identified UBS Asset Management as its international manager for real estate while JP Morgan Asset Management is its first manager for international infrastructure.

Meanwhile for domestic real estate, the pension fund handed out mandates to Resona Bank, Nomura Asset Management and Daiwa Fund Consulting.

The pension fund has been steadily moving into alternatives, following the lead of ‘big brother’ Government Pension Investment Fund, which said in 2014 it will invest up to 5 percent of its overall portfolio to alternative assets.