Japan pension funds boost alternative assets in yield hunt, Mizuho says

[TOKYO] Japanese pension funds are showing a growing appetite for investing in real estate and corporate debt as they seek higher returns in alternative assets amid ultra-low yields, the head of Mizuho Financial Group's trust banking arm said.

But the famously conservative investors probably won't want a bite of SoftBank Group Corp's new Vision Fund, Tetsuo Iimori, the chief executive of Mizuho Trust and Banking, told Reuters.

Years of ultra-low interest rates have forced the hand of Japan's mammoth pensions funds, as they can no longer rely on domestic government bonds for their returns.

"In recent years, our pension fund clients have had no other choice but to invest in alternative assets," Tetsuo Iimori, the chief executive of Mizuho Trust and Banking told Reuters.

"Pensions need to be managed in a stable way. But the problem is that there's no yield." Mr Iimori made the comments in an interview last week that was embargoed for release on Tuesday.

Mizuho Trust, part of Japan's third-largest lender, says about 25 per cent of the assets it manages are now alternative assets. It doesn't disclose the size of its total assets under management.

Its loans to companies in the United States and Europe, long-short equity, and real estate have trebled in the last three years to more than 300 billion yen (S$3.9 billion), Mr Iimori said, adding that if the current trend continued there would be an increase of another 100 billion within a few years.

But the push into riskier assets doesn't extend in all directions. When asked about investing in SoftBank's second Vision Fund, Mr Iimori said it would be difficult given what he said was the conglomerate's short track record so far.

SoftBank said in July it has secured pledges from Microsoft Corp and other investors of around $108 billion for a second Vision Fund aimed at investing in technology firms.

The hunt for yield has extended to the world's top pension fund, Japan's Government Pension Investment Fund (GPIF), which manages around US$1.5 trillion in assets - bigger than the economy of Australia.

As of end-June, the GPIF had put around 0.35 per cent of its assets in alternative investments as it, too, has retreated from unprofitable domestic bonds.

Japan's defined-benefit pensions have also increased their portion of alternative investments, to 13.5 per cent at the end of fiscal 2017, from 7.9 per cent in fiscal 2011, according to government data. 

REUTERS