Japan’s corporate pensions leave PE decisions to gatekeepers

Fewer Japanese corporate defined benefit pension funds plan to increase their allocations to private equity as they hand over the reins to investment gatekeepers, research has found.

Only 0.9 percent of institutions plan to raise their exposure to the asset class this year, down from 5.8 percent in 2018 and the lowest proportion for at least four years, according to JPMorgan Asset Management’s annual Japan pensions survey.

Respondents had 188 active private equity mandates so far this year and issued 28 fresh private equity mandates over the past two years, the report said. Almost one-third of pensions had invested in private equity as of this year.

“Gatekeepers have started private equity investment for a few years and the amount is gradually increasing,” Akira Kunikyo, investment specialist at JPMAM, told Private Equity International. “Asset owners, ie, pensions, are not sure how much they will allocate [or] invest in the future because they have delegated the investment authority in terms of the timing and the amount.”

Gatekeepers are not exclusive to corporate pensions: Japan’s Pension Fund Association for Local Government Officials – also known as Chikyoren – is among those relying on third-party management. In May, the ¥21 trillion ($197 billion; €176 billion) institution appointed BlueBay Asset Management Japan to manage its second foreign private equity mandate and Tokyo’s Alternative Investment Capital to oversee its fourth domestic private equity mandate.

Government Pension Investment Fund, the world’s largest public pension with ¥161 trillion in AUM, has been looking for global private equity gatekeepers since 2017. The pension is expected to recruit private equity funds of funds targeting North America, Europe and Japan across buyouts, growth capital, private debt and venture.

The ¥73 trillion Japan Post Insurance, which launched an alternatives strategy in 2016, is also building its portfolio with the help of third-party gatekeepers.

The average Japanese defined benefit corporate pension fund allocated 21.3 percent of its portfolio to alternative investments in 2019, a record high and the first time alternatives exceeded bonds since the survey began in 2008. Institutions with more than ¥200 billion of AUM had the largest average exposure to alternatives at 24.1 percent, while those with ¥50 billion-¥100 billion had the lowest at 11.7 percent.

Japan’s pensions were more bearish on infrastructure and real estate, with 7.8 percent and 5.2 percent intending to increase their allocations in 2019 respectively.

“Interestingly, we’re seeing a heightened interest specifically in illiquid assets such as infrastructure and real estate, suggesting institutional investors are turning to alternatives not just for higher returns and diversification but for stable income generation,” Kunikyo added in a statement.

The report surveyed 113 defined benefit pension funds and three mutual aid pension funds between March and May 2019.