Even as Japanese corporate pension funds are increasing their allocations to private markets or alternatives, the Noritz Corporate Pension Fund is still wary of moving further into sectors like private equity or real estate.
Kiyoshi Iwashina, Chief Executive Officer and Chief Investment Officer at the fund, has observed peers venture into alternatives over the last few years, starting with private equity, then infrastructure, and most recently into private debt, he told AsianInvestor.
With low Japanese interest rates, pension schemes have had to diversify to find income-generating assets beyond Japanese government bonds (JGBs).
Still, Noritz Corporate Pension Fund is only joining in its peers’ alternatives strategies in a very limited way, due to Iwashina’s scepticism about the markets. He expressed some interest in secondaries and distressed funds in private assets generally.
Neither investment nor dividends seem to be progressing due to changes in financial and economic conditions following a massive inflow of money into private assets that has continued until recently, according to Iwashina.
“I expect that existing investors, LPs, who are concerned about this situation, will gradually accelerate the process of disposing of their interests,” he said.
However, Iwashina believes that there is still plenty of accumulated money in private asset funds, which continued to increase until interest rates rose sharply in 2022. Until this dry powder is deployed in private markets, the timing will not be ideal for investing in distressed funds or secondary funds.
“This is because many primary funds can invest partially in these areas. Specifically, I believe that in another year or two it will be a very good time to invest, as the buying power of primary funds will be reduced, and the number of existing investors, LPs, who will find themselves forced to let go at really big discounts, will increase,” Iwashina said.
Meanwhile, the fund’s exposure to hedge funds and multi-asset strategies might already be larger than the average among Japanese corporate pension funds, while its allocation to private asset classes is very limited.
As of March 31, 2023, the end of the latest fiscal year, Noritz Corporate Pension Fund had ¥22.7 billion ($170.4 million) in assets under management (AUM).
Over the same period, Noritz had 14.8% and 15% of total AUM invested in hedge funds and multi-asset investments, respectively. Fixed income and equities made up 32.3% and 16.4% respectively, while the rest was in cash (13%) and the general account (8.5%).
Iwashina manages the defined benefits (DB) pension scheme with an annual return target of 3% for domestic employees at Noritz, a Japanese maker of tankless water heaters for industrial and private-home use.
A 2023 JP Morgan Asset Management survey among 81 Japanese pension funds, including 80 DB corporate pensions and one mutual aid association, showed that the average allocation to alternatives was 23.4% of total portfolios.
The share of assets allocated had been on a steady climb. A 2015 edition of the survey, for instance, showed a 12.8% of alternatives allocation, while in 2009 it was just 5.4%.