Tokyo Summit: ‘Japanese LPs need to be more aggressive’

As a shake-up of the country’s pension system looms, investors remain focused on liquidity despite a growing knowledge of overseas infrastructure, delegates heard today.

Infrastructure has many characteristics that suit the needs of Japanese investors, a room full of domestic LPs heard on the first day of Infrastructure Investor‘s Tokyo Summit today.

But there are caveats. As Japan’s pension system braces itself for a sweeping overhaul, the country’s LPs are willing to remain prudent. “In the middle- to worst-case scenarios, the risk is that there won’t be enough money left in the fund,” said Takeshi Ito, senior portfolio manager at AISIN pension fund. “So we have to be very careful about liquidity. We should aim for low-liquidity assets on which we can get our money back within three to five years, on average.”

On other fronts Japanese investors seemed more relaxed than some of their overseas peers. “Compared to private equity and real estate, few managers have gone through the financial crisis,” observed Takako Koizumi, senior portfolio manager at Tokio Marine Asset Management. “Is that something you’re concerned about?” she asked her fellow panellists.

“The story of infrastructure investment being young is one we already know. So I don’t see much sense in comparing that against the history of private equity or real estate,” said Hideo Ohashi, a director at Japan Post Bank. “A good track record does not necessarily mean a good performance in the future. You need to look at the reproducibility of those areas.”

“In mezzanine, I don’t think there’s that many opportunities. The funds that are not doing well are the ones that are not deploying” Sakura Koumi

Nobuo Ohtsuka, head of investments at Mercer Japan, listed a few criteria that his clients take into account when seeking to select GPs. “Vintage, risk factors of a fund, the idiosyncratic factor of the managers, leverage ratios, diversification, strategy types, these are all analysed.”

Debt was also an area Japanese investors seemed enthused about: some of them, he observed, classified infrastructure as part of their fixed income bucket. But Sakura Koumi, a vice-president at Mizuho Bank, said the ability to deploy was variable across markets. “In Europe, the horizon is very long for senior debt. For a bank that doesn’t really suit. Institutional investors, like life insurers and pension funds, would look at senior debt. Not many would look at primary investments, but secondary, yes.”

“In mezzanine, I don’t think there’s that many opportunities. The funds that are not doing well are the ones that are not deploying,” she added.

Overall, there was a feeling that Japanese investors, while increasingly sophisticated, should be more adventurous in their involvements with the asset class. “The Japanese investment universe, in terms of deaflow, remains limited compared to what’s available globally. So LPs need to engage with overseas managers. In today’s environment, they should also be a little bit more aggressive in how they allocate to the asset class,” Ohashi concluded.