Japan University Fund fuels growth through reinvestments
The Japan University Fund (JUF) is using positive returns to fuel its push towards a more diversified portfolio, according to Naoya Sugimoto, co-chief investment officer and head of the global investments department.
“Any surplus return we make is reinvested, to make the fund grow bigger. That will help our efforts to expand our equity cushion and make it possible for us to take more risk towards our reference portfolio’s risk tolerance,” Sugimoto told AsianInvestor.
Established in 2021, the relatively new asset owner saw positive returns of 10% for the fiscal year 2023 ending March 31. Some of these returns are being added to its initial portfolio of ¥10 trillion ($68 billion) seed capital, growing the amount of capital that can be invested.
“We aim to enhance and diversify our portfolio after our initial management was based on the principles: simple, defensive, and gradual,” Sugimoto said.
The new strategy includes a diversification beyond the established fixed income-focused foundation, into more investment in equities and alternative investments. Additionally, investments are expanding from developed markets into emerging markets and from passive to active strategies.
MULTIPLE SOURCES
JUF works under the framework of four sources of returns, the initial source being the policy portfolio structure in combination with beta captured through passive investments, the co-CIO explained.
“We also started the process to establish an alternatives portfolio early, so we can gradually capture the value creation through private markets. Such allocations take time, but we will keep continuing the commitment to extend that portion,” Sugimoto said.
Within alternatives, JUF makes investments across private equity, private debt, real estate, and infrastructure.
Most recently, JUF is seeking returns through tactical asset allocation and economic analysis. The fourth source is the push into active management, where the fund will capture excess returns, or alpha.
“We will focus on deepening the tactical asset allocation and also the active management, and the tactical allocation will typically be done by our in-house team,” Sugimoto said.
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Manager selection will therefore focus on active strategies as well as additional mandates within alternative investments.
“For this next stage, we would like to partner with the global top tier managers,” Sugimoto said.
Most recently, JUF has selected managers for its emerging market fixed income push. The fund has also selected active managers for US equities and is currently also in the process of selecting a manager for its active push into Japanese equities.
“Our future mandates and the related manager selection will depend on the market environment and the progress of our portfolio construction. We are currently analysing the potential of expanding our active equities scope even further,” Sugimoto said.
LONG-TERM VIEW
JUF, managed by the Japan Science and Technology Agency (JST), has been given the objective to secure long-term and stable financial resources for Japanese universities so they can strengthen their academic research infrastructure.
Some returns from the fund will be put aside to be used for grants that Japanese universities can apply for. It is the remaining surplus capital that will be reinvested to grow the equity cushion, compared to a reference portfolio consisting of 65% global equities and 35% global fixed income.
As of end-March, the end of JUF’s FY2023, the portfolio was split between 65.7% fixed income, 25.7% in equities, and 2.8% in alternatives, while the remaining share was kept in short-term assets or cash.
“The alternatives portion takes time to accumulate through investments. That is one reason why we have a horizon of 10 years to reach our final policy portfolio. We will also increase our risk taking gradually as the equity cushion will grow,” Sugimoto said.
The 10% returns for FY2023 meant that the total market value of JUF was ¥10.96 trillion at end-March.
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