This week in asset owner history: GPIF focuses on foreign property in push for alternatives

On September 21, 2018, the Government Pension Investment Fund (GPIF) of Japan revealed it had handed its first global property mandate to fund-of-funds (FoFs) manager CBRE Global Investment Partners, as part of a wider push into alternative assets.

At the time, the state-owned pension had around $1.39 trillion (¥156.4 trillion) in assets and had previously set a target exposure for alternatives, including real estate, at around 5% of its portfolio. However, by the end of March 2018, the fund’s annual report revealed it had just 0.13% invested in the asset class.

With GPIF setting the pace among its domestic peers in offshore investing, property experts told AsianInvestor that they predicted other Japanese asset owners would follow suit, investing capital into international real estate via funds and mandates in the months to follow.

ALTERNATIVES GROWTH

While the GPIF rush for alternatives is seen as coming relatively late compared with its peers, the fund is rapidly accelerating allocation to the asset class after solid initial performances.

As of end June 2022, GPIF’s total portfolio had increased to $1.5 trillion (¥193 trillion) in assets under management and alternative investments made up 1.32% amounting to $17.8 billion (¥2.548 trillion).  

Although this allocation is still considered marginal in the total portfolio, GPIF’s alternative investments are picking up speed and have increased by 75% when compared with 2021 and more than 500% compared with 2018.

GPIF still maintains a hard cap of 5% of its total portfolio for alternatives.

SOLID RETURNS

However, the larger allocation is likely due to the initial venture into the asset class paying off, according to its annual report for fiscal year 2021 (FY2021).

By the end of March 2022, the internal rate of return (IRR) was 5.85% in US dollars for all overseas infrastructure investments since infrastructure investments began at GPIF in February 2014 — and 3.24% on a yen-denominated basis.

The majority of GPIF’s allocation to alternative investments has been in the US.

As of the end of March 2022, US infrastructure investments accounted for 26% of its total alternatives portfolio, followed by 22% in the UK and 9% in Australia.

By sector, renewable energy made up 21%, communications 13% and utilities such as electricity and gas 11%.

Over the same period, US investments also represented the largest allocation by country for its real estate portfolio with 39%. This was followed by domestic Japanese investments with 29%, UK 10% and Australia 6%.

Logistics assets made up 42% of the portfolio, followed by offices with 32%, rental housing at 19% and retail at 6%.