Japan’s PFA: Pensions need to go outside Japan

Japan’s domestic market is not large enough to absorb capital from pensions, Daisuke Hamaguchi, CIO of the $107bn Pension Fund Association of Japan, said.

“Japan is not a large enough market for alternatives and pension funds need to go outside,” Daisuke Hamaguchi, chief investment officer of the Pension Fund Association (PFA) of Japan told Private Equity International on the sidelines of the FT Investment Management Summit Asia 2017 on Thursday.

However, Hamaguchi added: “This means higher costs and foreign exchange rates must also be considered.”

PFA, which manages ¥11. 8 trillion ($107 billion; €96 billion) of assets as of end-March 2016, is one of Japan’s big four pension funds.

While Hamaguchi did not disclose PFA’s exposure to overseas private equity, he said it currently invests around 4 percent of its overall portfolio to the asset class. And unlike the $1.3 trillion Government Pension Investment Fund, which is eyeing developed markets such as the US and Europe, PFA is not excluding emerging markets. In fact, the pension has investments in China and Indonesia, Hamaguchi pointed out.

In 2012, the investor also teamed up with Canadian pension Ontario Municipal Employees Retirement System and other Japanese financial institutions to invest up to $2.5 billion in large-scale infrastructure assets globally.

Hamaguchi asserted that while GPIF may be taking the lead in Japanese pension funds push into alternatives, there exists a large gap between the asset size of state pension funds and corporate pension funds, thereby limiting the smaller pensions from “hiring the right people”.

“The lack of resources is a huge problem among Japanese pension funds, it’s a challenge we need to overcome so we can invest more in private equity,” Hamaguchi said.