Japan’s GPIF mulling primary infra fund investments

The world’s largest pension fund has increased its commitments to fund-of-funds mandates from ¥50bn to ¥148bn in one year.

The world’s largest pension fund, Japan’s Government Pension Investment Fund, is mulling investing directly in GP-managed infrastructure funds, a spokeswoman for the organisation has confirmed to Infrastructure Investor.

“We are considering investing with other pension fund investors in the future as LPs in GP-managed funds, as we now have the potential to do so,” said Naori Honda, a spokeswoman for GPIF. She declined to provide more details. The fund was given official approval to invest in alternative assets through limited partnerships last year.

GPIF revealed this month in its annual report that it had tripled its investments to its infrastructure fund-of-funds mandates during the 2018 financial year (which ended on 31 March 2019). According to the report, commitments to the vehicles grew from ¥50 billion ($462.5 million; €415.3 million) to ¥148 billion during that period.

In early 2018, GPIF awarded two global infrastructure FoF mandates: to Stepstone Infrastructure & Real Assets and Pantheon. The pension fund awarded a third mandate, focused on domestic infrastructure, to the asset management arm of the Development Bank of Japan.

The fund has also invested ¥144 billion through its co-investment agreement with Canadian pension plan OMERS, the $12.5 billion Global Strategic Investment Alliance, which started in 2012.

According to GPIF’s documents, Stepstone’s mandate, with ¥97.9 billion AUM, is the largest of the three FoF vehicles. GPIF’s total investment in infrastructure stood at ¥293.6 billion. Through the scheme, the pension fund has invested in assets such as the Birmingham and Bristol airports.

GPIF’s annual report also reveals that 45 percent of the fund’s infrastructure investments are concentrated in the UK, down from 57 percent at the end of March 2018.

Asked about uncertainty in the country owing to Brexit and the opposition Labour Party’s plans to renationalise assets, Honda said GPIF was aware of political risks “not only in the UK, but also in other countries”.

She added: “That’s why we try to build our team to strengthen risk management for alternative assets. In addition, we are aiming to diversify our exposure to the asset class by using an FoF scheme.” The spokeswoman did not provide specific allocation targets.

By sectors, investment in ports amounted to 19 percent of GPIF’s exposure to the asset class, followed by airports (18 percent) and water and sewage treatment (16 percent). The annual report revealed that GPIF had invested in a Portuguese onshore wind project, a portfolio of more than 10,000 telecom towers in France and one of the largest solar power plants in Japan.

The report said the pension fund would focus on core, regulated assets, which it aims to hold for 10 years or longer.

Domestic assets generated an average IRR of 2.78 percent for the pension fund in 2018, while the figure for overseas assets stood at 1.76 percent.

Infrastructure Investor understands that the pension fund is looking to recruit new employees for its alternatives team, in order to further increase its exposure to private equity and real assets.

GPIF managed ¥159.2 trillion of AUM as of 31 March. Despite setting a ceiling of 5 percent exposure to alternative assets, the pension fund has invested only 0.26 percent of its AUM in alternatives.