Yield-seeking Japanese investors seen helping to fund global real assets

13 April 2017   Category: News, Asia, Japan   By Asia Asset Management

Traditionally conservative Japanese investors are eyeing higher-yielding investments such as global infrastructure and real estate after a prolonged period of low economic growth and yields, according to analysis from Australia-based AMP Capital.

With AUM of about 500 trillion yen (US$4.4 trillion), the Japanese institutional investment market “represents a substantial source of capital for investment into real assets across the globe”, the company says in a statement on Tuesday (April 11).

According to Toshiaki Yamashita, Japan-based managing director of AMP Capital, Japanese institutional investors particularly prefer assets that are lower risk and generate low- to mid-single digit yields.

He says Japanese retail and institutional investors are broadly seen as conservative, with more than 50% of financial assets in deposits and only about 5% in investment trusts.

“This allocation may change, however, as government policies encourage investors to shift from deposits to investments, investors begin seeking higher-yielding assets after a prolonged period of low growth, and an easing of institutional investors’ aversion to risk,” Mr. Yamashita says in the statement.

After decades of low growth and limited domestic opportunities, “it’s a natural step for Japanese institutions to begin deploying capital to global infrastructure projects, which is a positive development for liquidity and will continue to support the globalisation and maturation of this market”.

In addition, the fact that Japan’s institutional investment market – comprising corporate pensions, public pensions and financial institutions – are almost universally arranged as defined-benefit schemes, underscores the need for consistent income streams that may be offered by real assets investment, the company says.

It expects infrastructure debt to be one of the beneficiaries of the growing Japanese appetite for different investments. 

Andrew Jones, global head of infrastructure debt at AMP Capital, sees significant growth opportunity in Asia, where the majority of investors that have a preference for unlisted infrastructure debt are based.

Investors in Japan in particular, mainly comprising banks and investment banks, “tend to have the resources and expertise to invest in the market as well as a more positive sentiment since the financial crisis,” he says in the statement.

“Strong deal flow opportunities coupled with limited competition from alternative junior lenders provide the potential to generate the attractive risk-adjusted returns focussed on cash yield these investors are looking for,” he adds.

Japanese institutional investors have also extended their interest to global listed real estate; particularly the US real estate investment trusts (REITs) market.

“Japan has been the second biggest market for asset exchange-traded fund flow in listed real estate in 2016 behind the US, and given the Bank of Japan has increased its allocation to Japanese REITs from 5% to 10% during 2016, we don’t expect this trend to change any time soon,” James Maydew, head of global listed real estate at AMP Capital, says in the statement.

“Even as cash rates start rising, the demand for listed real estate and its characteristics of diversification, stable cash flows and income yield will continue to be sought by Japanese and global investors,” he adds.

AMP Capital-managed alternative funds received more than A$1 billion (US$749.2 million) from Japanese investors in the past five years. The firm was managing A$165 billion in funds as of December 31, 2016.