Nippon Life to commit $360m to infra funds

Japan’s institutional investors are eyeing better returns from infrastructure assets as negative interest rates start to bite.

Nippon Life Insurance, Japan’s largest private life insurer, has set aside JPY40 billion ($360 million; €318 million) for new commitments to infrastructure equity funds and established its own global platform for infrastructure fund selection. 

Targeting utilities, transportation and social infrastructure, the commitments will be made through Nippon Life Global Investors Americas and Nippon Life Global Investors Europe, two wholly-owned subsidiaries. The insurer plans to invest up to JPY1 trillion in “emerging sectors” such as infrastructure, environmental investments and emerging markets in the next three to five years, it said in a statement.

It views infrastructure as “an asset class with significant growth potential due to the strong demand for repairing existing infrastructure and the increasing need for utilising private capital as a consequence of the tight fiscal situation in the public sector”. 

Nippon Life intends to build on what it will learn from fund investments overseas to pursue individual infrastructure opportunities in Japan. The move comes at a time when the country seems to be ramping up privatisations such as the sale of the New Kansai International Airport sale

Nippon Life has been striving to develop its in-house capabilities for infrastructure specifically via fund investments and secondment of investment professionals to prominent financial institutions. 

Its assets under management totalled JPY63 trillion as of 30 December 2015, 30 percent of which are invested in Japanese government bonds and 12 percent in loans. 

Nippon Life is not alone in Japan in its quest for infrastructure investments. 

Last week, Masatsugu Nagato, president of Japan Post Holdings, said the newly listed company planned to start buying assets such as overseas real estate investment trusts and infrastructure funds. The company has been working to diversify its $2.6 trillion investment portfolio, which comprises a large portion of government bonds, to avoid being pinched in the current negative interest rate environment. 

Japan’s Government Pension Investment Fund, the world’s largest pension, has also been boosting its alternative investment team and plans to invest more in infrastructure projects in a bid to secure higher returns. 

Having teamed with Canada’s Ontario Municipal Employees Retirement System and the Development Bank of Japan to co-invest in infrastructure in developed countries since 2014, the fund could deploy as much as five percent of its $1.2 trillion war chest in alternative assets. It announced the appointment of State Street Trust and Banking as a custodian for its alternative investments last week.