Japanese institutional investors, with nearly $4.4 trillion in assets under management, are primed to play a key role in funding global real assets, including infrastructure and real estate, AMP Capital said in a new report.
“The unique characteristics of the market in Japan have impacted investor sentiment and behavior, as few other economies have experienced as long a period of low growth and low yield,” observed Toshiaki Yamashita, AMP Capital’s managing director in Japan.
Traditionally, Japanese retail and institutional investors have broadly been conservative, with more than 50 percent of their financial assets in deposits and approximately 5 percent in investment trusts. But Tamashita said that allocation may change, as government policies encourage investors to shift from deposits to investments.
When it comes to infrastructure, AMP Capital believes Japanese investors are unlikely to become direct investors over the next three to five years, but will rather continue to invest through fund managers. They also show a clear preference for lower-risk assets that can consistently generate a low to mid-single-digit yield and strategies targeting infrastructure debt and listed infrastructure.
Andrew Jones, global head of infrastructure debt at AMP, argued that strong dealflow opportunities, coupled with limited competition from alternative junior lenders, offers the potential to generate attractive risk-adjusted returns, focused on cash yield, from infrastructure debt.
On the other hand, interest in listed infrastructure is beginning to broaden to the institutional market due to the challenges in accessing direct infrastructure allocations, the size of the listed market and a desire for liquidity, AMP said.
The Australian fund manager pointed out Japanese investors have committed more than A$1 billion ($750 million; €706 million) to its funds, signaling an “increasingly comfortable approach to investing in infrastructure across asset classes including debt, equity and direct”.
Earlier this year, AMP Capital raised $2.4 billion for its global infrastructure platform. It is now raising its latest infrastructure debt vehicle and is halfway to reaching its $2 billion target, Infrastructure Investorreported in February.