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Japan’s large investors second most active in alternatives in Asia Pacific, Preqin says

By Asia Asset Management  
Jul 2, 2019

Japanese institutional investors are the second most active investors in the Asia Pacific region in non-traditional or alternative assets as they search for better returns amid low domestic interest rates, according to data provider Preqin.

It surveyed the trend among Japanese institutional investors earlier this year, and found that around 303 are active in alternatives, second only to the 450 in China, Preqin says in a statement on June 27.

That’s more than half, or 53%, out of 567 institutional investors in Japan. The share is even higher in China: over three-quarters, or 77% out of 585.

Among Japanese investors, two-thirds of the 303 invest in at least one category of alternatives.

Private equity is the top choice with 58% investing in the asset class, followed by 48% in private debt, and 46% in natural resources. Hedge funds are the least favoured, at 35%.

“A persistent low-interest environment set by the central bank, as well as stagnant growth in recent years, have put enormous pressure on Japan-based investors as they look to meet their returns targets,” Jie Sin Chia, head of Asia products at Preqin, says in the statement.

“Alternative assets have long been a part of the investment landscape in Japan, but the industry’s ability to offer diversification and long-term yield have brought them to the forefront of investors’ minds,” she adds.

The Bank of Japan has kept interest rates at rock bottom for many years to prop up the economy. In April, the central bank said it will keep rates low until at least the spring of 2020.

According to Ms. Chia, although Japanese institutional investors “are clearly looking for opportunities to allocate to the rest of Asia, North America and Europe, in most asset classes investors remain primarily focused on domestic opportunities”.

“We are likely to see this shift if the low-interest and slow-growth environment remains in place,” she says.

Regionally, Preqin says the Far East remains the “most sought-after” investment destination for private capital investors, while hedge fund investors prefer to allocate with a global focus.

Preqin also says some 71% of Japanese institutional investors have established environmental, social and governance policies in their mandates, or are planning to do so within the next five years.