As the world and the Wall Street Journal continue to give way too much significance to Japan ‘overtaking’ China as the largest foreign holder of US treasuries, Japanese institutional investors and asset management intermediaries are adding other yield-producing items to their menus.
Collateralized loan obligations
Bloomberg reports in, American-Made Junk CLOs Now Being Served in Yield-Starved Japan, that
“To make it easier for Japanese investors to get to this U.S. debt, bankers have repackaged a dollar-denominated collateralized loan obligation into yen-denominated bonds, using derivatives to hedge out risk related to currency fluctuations.
“The Repackaged CLO Series GG-A1 Ltd, for example, consists of a special-purpose entity that will issue Japanese yen-denominated notes and is backed by the U.S. dollar-denominated notes” issued by Kitty Hawk CLO 2015-1 LLC, according to a Standard & Poor’s March 24 pre-sale report.
“Essentially, it transforms $249 million worth of a $331 million U.S. CLO managed by Guggenheim Partners Investment Management into highly-rated Japanese-yen denominated bonds, according to an April 15 Moody’s Investors Service report.
“The transaction was arranged by Mitsubishi UFJ Financial Group Inc, which is also the counterparty on the currency swap that mitigates the risk of losses from changes in the yen-dollar exchange rate”.
Real estate funds
Meanwhile the Japan Times/Bloomberg report, in Bubble-era missteps shape Tokio Marine property strategy that the insurer, one of Japan’s oldest, wants to:
“Increase overseas property assets by about 10 billion yen this years, and to raise that amount to 100bn yen ‘in several years’…Tokio Marine Property has already invested in property funds in the UK, Europe and Australia.”
The article notes further that “Japanese pension funds are tipped to lead the charge in term of overseas real estate investment as they seek to boost returns to meet payouts in one of the fastest aging nations”.
It is not clear whether this is intended to mean that retirement schemes will invest in physical property or real estate funds.
US treasuries again
The Financial Times cautions that Global property bubble fears mount as prices and yields spike and Wall Street Journal blogger Bylan Talley put his colleagues’ reporting into a sensible context in Did Japan Really Overtake China as the biggest foreign holder of US Treasury debt: A deeper look at the math. Unfortunately they appear not have read it.
Meanwhile the dash into drug makers stocks because they pay higher dividends than most other appears to have paused for breath.
© 2015 Japan Pensions Industry Database/Jo McBride. Reporting on, and analysis of, the secretive business of Japanese institutional investment takes commitment, money and time. This blog is one of the products of such commitment. It may nonetheless be reproduced or used as a source without charge so long as (but only so long as) the use is credited to www.ijapicap.com.
This blog would not exist without the help and humour of Diane Stormont, 1959-2012