JPMorgan says Japan pensions turn to hedge funds to avoid risks

[TOKYO] Japanese pension funds are turning to alternative assets such as hedge funds, property, infrastructure and private equity as volatility in the market increases, according a JPMorgan Asset Management (Japan) Ltd survey.

Average allocations to alternative assets increased to a record 14 per cent in the 12 months ended March, from 13 per cent a year earlier, based on the responses from 127 domestic pension funds surveyed by the unit of JPMorgan Chase & Co. For pensions that have invested in alternatives, such assets are now their second-biggest allocation, accounting for 19 per cent of the total, following a 27 per cent holding in Japanese bonds, the survey showed.

Japanese pensions have been steadily moving out of stocks and bonds in search of stable assets amid unexpected events such as the Bank of Japan's negative interest rate policy in February.

Now, with the UK's decision to leave the European Union rattling markets, sending global equities lower and triggering large swings of major currencies, pensions' appetite for alternative assets is likely to continue. About one in four pension funds surveyed said they will boost allocations to alternatives, while one in five said they will reduce allocations to Japanese equities amid a surge in volatility.

"Pension funds are recognizing the rapid increase in volatility," Akira Kunikyo, vice president of client business division at JPMorgan, said at a briefing in Tokyo Monday. "We expect allocation to alternative assets to continue to increase going forward."

Within alternative assets, hedge funds accounted for 8.3 per cent, while real estate investment trusts and property each represented about 1 per cent to 2 per cent, according to the survey.

Investments in Japanese stocks and bonds have declined steadily in the past five years, with equities falling to 8.4 per cent from 14 per cent in 2012, and bond holdings declining to 30 per cent from 38 per cent in the period, the survey showed.

BLOOMBERG