Japan’s Chikyoren seeks out alternative asset managers

While the $217bn public pension fund, which has to date invested $162m in overseas infrastructure, focuses on core strategies, it is also eyeing core-plus opportunities.

Japan’s Pension Fund Association for Local Government Officials, known locally as Chikyoren, has issued a request for proposals in a search for infrastructure, real estate, private equity and private debt asset managers, in Japan and overseas.

Chikyoren kick-started its infrastructure programme in June 2016, alongside its real estate strategy. While the public pension fund prefers investing in core infrastructure, it is also considering a core-plus strategy, a senior investment analyst told Infrastructure Investor.

According to the RFP, the pension fund is looking to invest in domestic and global infrastructure with asset managers, who have at least 100 billion yen ($885 million; €762 million) in AUM.

Further details regarding the selection process and returns expectations were not disclosed. There is no set deadline for submission of proposals nor a pre-determined commitment size for each mandate. Chikyoren’s manager registration system operates on a rolling basis, similar to that of its larger peer, the Government Pension Investment Fund of Japan, which accepts proposals all year round and makes investment decisions accordingly.

Between June 2016 and March 2018, Chikyoren invested a total of 18.3 billion yen through four overseas infrastructure mandates, according to its latest annual report. These include a 3.4 billion-yen commitment to Mitsubishi UFJ Trust Bank targeting European regulated assets, which had delivered an annualised return of 4.96 percent in the previous fiscal year beginning in April 2017 and ending this March.

The 3.5 billion-yen mandate with JPMorgan Asset Management to invest in core infrastructure in OECD countries delivered an annualised 10.27 percent return, while a 1.5 billion-yen investment with Tokio Marine Asset Management targeting Australian assets, had generated a negative return of 1.42 percent between July 2017 and March.

The largest mandate of 9.9 billion yen landed with Mizuho Global Alternative Investments to invest in infrastructure debt globally. That had delivered a return of 0.77 percent during the last fiscal year.

In May, Chikyoren appointed Mitsubishi Corporation Asset Management to pursue infrastructure opportunities domestically.

Apart from infrastructure, the public pension has also awarded five real estate mandates for overseas and domestic investments and two domestic private equity mandates over the past two years.

This latest RFP marks the first mandate dedicated to private debt. It is understood that Chikyoren has gained exposure to illiquid credit via real estate debt and infrastructure debt investments and it is now looking for private corporate debt opportunities in the US and Europe.

Chikyoren, which is known as one of Japan’s “Big Four” public pension funds and the second largest after the $1.4 trillion GPIF, is the first among public pensions to issue an RFP for alternative investments in a bid to diversify its portfolio from a long-term investment perspective.

Its current exposure to alternatives stands at 0.4 percent, while the maximum allocation for alternatives is set at 5 percent of its total assets – representing around 1.2 trillion yen of its 23 trillion yen in total assets under management, as of this March.

Additional reporting by Adalla Kim.