Japan University Fund to add equities, alternatives to portfolio
The Japan University Fund (JUF) is shifting its portfolio towards more riskier investments in equities and alternatives, after having established itself in the fixed income market, its co-chief investment officer told AsianInvestor.
“We will enhance the equity share of the portfolio over time, and alternatives will – to a lesser extent – eventually also make up a relatively larger share than it was the case by end of March 2023," Naoya Sugimoto, co-CIO and head of the global investments department at JST said.
"We have focused on fixed income as the first step to mitigate risk."
The ¥10 trillion ($70 billion) national university fund, managed by 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 strenghten their academic research infrastrucuture.
DRY POWDER
Established in 2021, JUF started investing in March 2022. As of end-March 2023, the end of JUF’s fiscal year 2022 (FY2022), total assets under management (AUM) stood at ¥9.964 trillion, according to the FY2022 report.
¥5.4 trillion, or 54.6%, was invested in fixed income, ¥1.7 trillion (17.2%) invested in equities and ¥64.3 billion (0.6%) invested in alternatives.
The remaining ¥2.7 trillion (27.6%) was still listed as cash and other short-term assets, meaning the JST fund potentially still had over $19 billion to allocate before being fully invested.
Sugimoto declined to comment on the current portfolio construction and the remaining dry powder amount but confirmed that there have been considerable changes in the portfolio composition, and the amount of invested capital since the end of FY2022.
“The risk tolerance we have been given focuses on return maximization which gives us a broader strategic framework than if we had to navigate according to a target return,” he said.
NO HOME BIAS
The portfolio composition aims to be globally diversified with no dedicated target for the domestic market, as opposed to Japan’s Government Pension Investment Fund (GPIF).
The world’s largest asset owner, with assets valued at ¥219.3 trillion as of end-September 2023, has portfolio composition that targets around 25% to be allocated Japanese equities and another 25% allocated to Japanese fixed income.
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This portfolio composition means that Japan is regarded as any other market for JUF, meaning that all investments in global or regional indices of funds can be done without special requirements, Sugimoto explained.
Nonetheless by the end of FY2022, Japan was the market ranked second among JUF investments with a combined market value of fixed income and equities of ¥10,6 billion, only second to the US market (¥43.8 billion), followed by France (¥5.8 billion), Australia (¥2.8 billion), and Canada (¥2.3 billion).
The list heavily reflects JUF’s initial focus on assets in developed markets, Sugimoto added.
10-YEAR HORIZON
Overall, the JUF portfolio will consist of both active and passive investments and include alternative investments.
“Only by JUF’s 10-year mark in fiscal 2031 do we expect to have fully established the policy portfolio that will be able to deliver a minimum annual return target of 3% above inflation,” Sugimoto said.
The fund became fully funded by the end of the FY2022 ending March 31, 2023, with roughly 9 trillion in loans and 1 trillion form the Japanese government. The principal payment of the loans will start in 20 years and then run over 20 years. The low-interest loan payback is included in the funds capital structure, Sugimoto explained.
“We aim to have made investment gains of ¥300 billion, or 3% of the capital, by the end of fiscal 2026,” Sugimoto said.