Imminence of institutional infrastructure investment over-stated

Japanese investors are ‘primed to play a key funding role for global infrastructure and real estate’ according to a new report from AMP Capital, the fund management subsidiary of giant Sydney-based pensions provider AMP Ltd.

AMP Capital has over A$165 billion in its stewardship and acknowledged expertise in physical assets investment.

In support of its conclusion the publication points to patterns in Japan’s demographics, investment yields and institutional money under external management.

These well known trends do indeed indicate the logic of institutions investing in income-producing assets but do not in themselves demonstrate that institutions are any more ‘primed’ to do so now than they have been in the past several years.

Not as near as it looks

The only factor to have changed significantly in that time is the rise in assets under management from non-pensions sources which shows up in Japan Investment Advisors’ Association statistics as money from ‘other’ customers (see archive Asset management rides high on market gains and new money 23 March 2017).

As ‘others’ are reliably said to be mostly small regional banks needing to park money during a period of very low loan demand, it is unlikely that the cash is destined for investment in illiquid infrastructure or real estate assets.

The huge ‘government’ pensions category in the JIAA numbers is dominated by the Government Pension Investment Fund, the world’s largest institutional investor, which has made clear its interest investing in property and infrastructure — but via segregated funds of funds managed solely for it (see archive GPIF tiptoes towards PE, infrastructure and real estate 12 April 2017.)

Many corporate pensions will readily acknowledge the logic of committing money to revenue-earning assets and have been lamenting for several years that they do not have the expertise to judge such projects.

Supporting pensions decision-making

GPIF is often seen as leading the way for other retirement schemes to follow but its allocation to all types of ‘alternatives’ is limited to 5% of its portfolio and corporate funds would be cautious about committing any more – even to funds of funds — of their very much smaller pots while that ceiling remains in place.

Company pensions are only very rarely staffed by investment professionals or even by staff who stay in the job for very long since, like all other corporate personnel, they are subject to Japan’s job rotation system* which sees them moved to different work every three years or so.

Persuading these employees to commit the pension contributions of their employers and fellow workers to anything new will need and a large and imaginative educational effort.

That in turn will be complicated by the complete absence of any Japanese-language  institutional investment media other than a highly technical fortnightly newsletter published by an actuarial consultant and costing over US$1,000 a year.

In theory life cos are better placed to invest in real assets but in practice the only recent change in the composition of their portfolios has been in the swelling ‘foreign securities’ component (see archive Life cos (minus Post Insurance) now have 30% of their money abroad 20 March 2017).

Japan Post Bank, and to a lesser extent Japan Post Insurance, has talked so much about expanding its massive holdings into ‘alternatives’ that when action finally comes it will look like very old news.

Meanwhile the behemoth city banks keep income-earning assets such as aircraft leases on their own balance sheets since they too have to find alternative means of investing  given the absence of growth in loan demand. Only occasionally does something investible come loose from this pack (see archive Banks let investors in on aircraft leasing act at last 11 July 2016).

Similarly Japan’s trading companies – Mitsubishi, Mitsui, Sumitomo, Marubeni, Itochu, etc — own as part of their business logistics facilities around the world which, were they ever short of money, they could package for sale to pension funds and then lease back.

The same is true of the property firms which own much of central Tokyo.

The snag is that none of them is sort of money.

However, they are sometimes short of imagination and that lack allowed enterprising foreign firms to spot the unmet demand for warehousing facilities as Japanese distribution patterns changed and to make a significant success of packaging projects which build and/or invest and selling them on to institutional investors.

* For examples of how job rotation works ttp://www.nytimes.com/1982/07/12/business/how-job-rotation-works-for-japanese.html and http://www.nytimes.com/1982/07/12/business/how-job-rotation-works-for-japanese.html and http://www.japanintercultural.com/en/news/default.aspx?newsid=194. Both are now some years old but very little has changed.

© 2017 Japan Pensions Industry Database/Jo McBride. Reporting on, and analysis of, the secretive business of Japanese institutional investment takes big commitments of 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 and a link provided to the original text on that site.

This blog would not exist without the help and humour of Diane Stormont, 1959-2012

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