Japan’s Pension Fund Association for Local Government Officials, known in the country as Chikyoren, has appointed Asset Management One as the external manager for its latest foreign real estate mandate.
The pension fund announced the appointment in a statement on June 7 and, as usual, did not disclose any other details, including the amount of investment.
This is Chikyoren’s third foreign real estate investment in as many years.
Large investors in Japan, such as the Government Pension Investment Fund (GPIF), have increasingly shifted into real assets in a bid to beef up returns in a low-yield environment. Last year, GPIF, the world’s largest pension fund, hired US property manager CBRE to oversee its first global real estate fund-of-funds strategy.
According to Victor Yeung, managing partner of Hong Kong-based real estate manager Admiral Investment, Japanese institutional investors have had less of a home country bias in their asset allocation strategies in recent years.
“Japanese investors have stronger demand for asset diversification. Overseas properties are one of the asset classes on their radar. The investors generally count on global fund managers as they don’t have internal investment capabilities,” Mr. Yeung tells Asia Asset Management (AAM).
“Overall, Asian institutional investors have stronger interest in direct investments, especially for the properties located in central areas. The average rental yield from [foreign] real assets is able to provide stable cash flows for pensions to meet their asset-liability matching demand,” he says.
But Japanese institutional investors have been facing issues in some of their favourite foreign property markets.
The US is their top choice because of its size, liquidity and diversified nature but high currency hedging costs have made it a tough market recently, according to an analyst at a US-based real estate investment firm.
“The next popular destination is the UK, but due to Brexit, this has been difficult as well,” the analyst tells AAM, speaking on condition of anonymity.
Chikyoren, one of Japan’s largest pension funds, awarded its first foreign real estate mandate to UBS Asset Management in July 2016, and followed up a year later with its second, which was given to Invesco Asset Management (Japan).
Chikyoren had approximately 10.6 trillion yen (US$96.8 billion) of total assets at the end of 2018.
Tokyo-based Asset Management One currently has over $500 billion of assets under management.