Japan’s GPIF to dabble in alternatives

03 March 2014   Category: News, Asia, Japan, Canada   By Maya Ando

Japan’s Government Pension Investment Fund (GPIF) is launching its maiden investments in alternatives by partnering with the Development Bank of Japan (DBJ) and Canada’s Ontario Municipal Employees Retirement System (OMERS). The fund is investing in infrastructure and the energy sector and the projects eyed include power generation, electricity transmission, gas pipelines or railways.

GPIF sees infrastructure investment as one of the most valuable investments for overseas pension funds; it says that infrastructure as an asset class can offer yields higher than fixed income and with lower market volatility. Infrastructure is classified as internal fixed income in GPIF’s policy asset mix and will be managed as part of GPIF’s in-house investments.

To boost its in-house capabilities, GPIF has hired Noriko Hayashi, a veteran private equity portfolio manager at Sony Life in Japan. Ms. Hayashi has long experience of managing global portfolios.  

GPIF says that the co-investment will be made from a unit trust that will be managed by Nissay Asset Management (NAM), the third largest asset manager in Japan, serving approximately 330 private pensions with US$65.2 billion in AUM. The amount is equivalent to 0.2% of its total reserves of 129 trillion yen as at the end of December 2013. GPIF will consider investing as much as 280 billion yen (US$ 2.7 billion) in alternative assets if it is able to identify suitable investments.

Mercer Investments will provide investment advice to NAM upon deciding investments in infrastructure as proposed by OMERS. Between 2009 and 2013, OMERS achieved a 11% rate of return from its infrastructure investments. The Canadian fund has net assets of $65.1 billion, growing from $60.8 billion in 2012. Prior to its joint investment agreement with GPIF, OMERS collaborated with the Pension Fund Association and that resulted in an acquisition of Midland Cogeneration Venture in Midland, Michigan, a US power plant for $2 billion last July.

GPIF’s latest move, bold by its standards, comes after the fund undertook a series of in-depth research and studies. The fund collaborated with a number of firms, which included law firm Atsumi & Sakai, Swiss private equity fund firm Capital Dynamics, Japanese life insurer-backed asset firm T&D Asset Management and a Tokyo-based independent private equity consultancy, Brightrust PE Japan in 2012.

Earlier last month, GPIF President Takahiro Mitani was quoted as saying that the fund had to endure pressure at home to raise its investments in local equities from senior officials of the current administration. However, GPIF officials later claimed that his comments had been taken out of context.