This week in asset owner history: Japan Post Bank plans tenfold jump in alternatives
Japan Post Bank was one of the few Japanese asset owners venturing aggressively into the alternatives space in 2017.
Post Bank was betting big on hedge funds at the time.
The Japanese entity planned to continue bumping up its investments in hedge funds as part of a broader push into alternatives to boost returns, Naohide Une, managing director and head of the group’s strategic investment department, told AsianInvestor in December 2017.
About half of its asset allocation in alternatives was in hedge funds, Une said.
The institutional investor had earlier said it plans to boost its $7 billion alternatives asset allocation by a factor of almost 10, which Une reiterated at the panel discussion.
Since then, Japan Post Bank has maintained its appetite for alternatives but shifted focus away from hedge funds to private equity (PE) and real estate funds – but not without some bumps along the way.
By February 2020, four of the seven top investment professionals brought in to bulk up Post Bank’s expertise a few years earlier, had left and the bank was reportedly dialling back its more aggressive investing approach, Reuters reported. The focus on hedge funds cooled off.
NEW ALTERNATIVE FOCUS
Fast forward to 2022, and Japan Post Bank, which had total investment assets worth ¥222.8 trillion ($1.7 trillion) at the end of September, remains optimistic about alternatives but has pivoted towards PE in its ‘strategic investments’ plan.
Post Bank classifies investment assets as yen interest-rate assets, such as Japanese government bonds, and risk assets, such as foreign securities, corporate bonds and loans.
Within risk assets, it has a special category for alternative assets labelled strategic investments, most of which are PE and real estate funds.
By September 2022, strategic investments had swelled to ¥9.6 trillion ($70 billion) from about ¥3.3 trillion ($24 billion) at the end of March 2020. PE investments climbed to ¥5.3 trillion ($39 billion) from ¥1.7 trillion ($12.5 billion) over the same period.
The bank started its private equity program in 2017 and had bulked up its PE investment team to 27 by April 2022 from 7 in 2016.
This team invests primarily in offshore unit trusts manaed by investment managers and invests in various strategies including venture capital, distressed and buyout.
Post Bank plans to increase its strategic investments to about ¥10 trillion ($73 billion) by March 2026 as part of its medium-term strategic investment strategy released in May 2022, which suggests allocations to alternatives could remain relatively stable over the next few years as it already close to that target.
Still, the Japanese asset owner has made good on its promise, as its alternatives basket has soared to $70 billion from $7 billion five years ago.