At most conferences, the panel that precedes lunch can be a tricky one to manage. As empty stomachs drain delegates' attention away from the stage, the audience sometimes thins before the discussion ends. The LP panel of our Tokyo Summit, held in late April and attended by a record 300, faced no such problem: thoroughly packed with delegates thirsty for infrastructure knowledge, the room seemed ready to forego sushi to take part in the final Q&A.
At last, Japanese investors are seriously engaging with the asset class. The country's trading houses have long been deploying money into infrastructure, with the likes of Marubeni, Mitsui and Mitsubishi sponsoring power and transport projects around the globe. But institutional investors have so far proven far more conservative.
It's not for want of money to deploy: the Government Pension Investment Fund of Japan, the national champion and the world's largest pension, manages about $1.3 trillion. And collectively, Japanese pensions and insurers manage about $5.8 trillion, according to a late 2015 report from the Nomura Research Institute.
GPIF's decision to launch its first-ever call for applications for infrastructure funds of funds earlier this year has helped cristallise interest. Insiders we spoke to reckon Japan's smaller LPs will probably mimic the pension's strategy once it properly gets going, from its geographic remit to the exact size of its allocation. “They're all waiting to see what the big guy does,” one adviser told us. Another giant pioneer is the $1.8 trillion Japan Post Bank, which recently hired a team to kick-start an international infrastructure programme.
Yet the 'big guys' embracing infrastructure is only one catalyst, with other factors accounting for the steady build-up, in recent years, of Japanese LPs' appetite for the asset class. Most prominent is the impossibility to generate yield from government bonds in the current macroeconomic environment – a dynamic even more pronounced in Japan, whose central bank has been experimenting with negative interest rates since January last year.
But ending there would leave us with an overly simplistic picture, considering the Japanese LP community counts some remarkable outliers. The $9 billion AISIN pension fund, for example, started investing in infrastructure in 2008. Helped by asset manager Tokio Marine, it has since backed 15 funds, including EQT's and Antin's latest flagship offerings. More than yield, the sophisticated pension looks to infrastructure for diversification purposes, senior portfolio manager Takeshi Ito told us.
Second, it is likely that LPs will get involved with the asset class at variable speeds. Corporate pensions may be slowed down by their initial focus on domestic assets, given the modest size of Japan's private infrastructure market. With a looming overhaul of the corporate pension system possibly in the cards, they are also worried about liquidity, and shying away from funds with longer tenures. For once, public pensions – which are lagging behind their corporate cousins in real estate – will likely take the lead.
Japan being Japan, they will probably do so at their own pace. While our data shows that more than 50 domestic LPs are currently seeking exposure to the asset class, few have set an allocation target. For fund managers, that could make a big difference.
One of them told us that Japanese LPs, while rarely keen to sign up as early-bird investors, can rapidly propel a fund to its hard-cap once the original target is in sight. The era of ever-increasing infrastructure fund sizes is definitely not over.