Q&A: Japan Post Bank's Tokihiko Shimizu

Q: What factors led to Japan Post Bank creating an alternative investment program?

A: Japan Post Bank listed last November, so we had to start generating dividends to shareholders, but the investment portfolio was very much weighted towards Japanese government bonds. We had to shake up the investment strategy and one of the answers was to seek higher-growth returns in alternative assets.

Q: What were the key steps in developing the program?

The diversification that private assets offer is a positive addition to our portfolio

A: It really started when Katsunori Sago, who used to be executive vice chairman of Goldman Sachs Japan, joined in June 2015 as CIO. He was followed by Naohide Une, formerly head of equity derivatives trading with Goldman Sachs in Tokyo, who is head of the strategic investment department. Then I joined in October of last year to lead the private investments business. We established the private equity investment department in December 2015, and we now have about 20 people covering private equity and real estate. We will deploy small percentage of overall assets in the alternatives space, which includes private equity, infrastructure, real estate and hedge funds. But this exposure will build gradually, over several years.

Q: When did you start making private equity investments?

A: We launched the program in April so that is when the first private equity investments were made. We selected a handful of Japanese asset management companies - fewer than five - to serve as gatekeepers. We make commitments to them and they invest in funds. These asset managers have close relationships with advisors across the private equity industry. They don't necessarily have the knowledge or capabilities to select small and mid-cap players in geographies such as North America and Europe, so we would expect them to work with fund-of-funds and other advisors. I am unable to disclose how many funds we have backed so far, but our private equity program is big, although the percentage allocation is small. And it will be a globally diversified investment portfolio.

Q: How important are yield-generating assets to Japan Post Bank?

A: We have to deliver dividends to our shareholders, which means generating cash flow consistently year-on-year. I think private assets are an important part of this, particularly given the potential returns in private equity are so much higher than for the likes of government bonds. Within alternatives, real estate and infrastructure are also important because they offer stable, inflation-linked cash flow over a long period of time. They deliver an illiquidity premium as well. The diversification that private assets offer is a positive addition to our portfolio.

Q: How significant is Japan Post Bank's decision to invest in alternatives to the broader domestic LP community?

A: My impression is that, for a long time, the private markets industry thought that large Japanese institutional investors don't want to move into alternatives. We are a first mover among these institutions in terms of targeting private equity, but in a global context we are latecomers. However, we believe we can accumulate a lot of experience in private equity by hiring the right people and by communicating with experienced peers. We would like to forge close relationships not only with the GPs but also with experienced international investors in private equity. I don't know how much impact we will have on the industry, but I think this development will benefit institutional investors in Japan as well as the wider Japanese economy via our domestic investment itself.

Q: How do you expect your approach to differ from other large institutional investors?

A: Some sovereign wealth funds and large pension funds tend to focus more on the mega funds and comprehensive partnership programs. At the same time, monetary easing policies and the low interest rate environment have pushed up enterprise valuations for companies involved in large buyout transactions. Many investors are looking for PE exposure but in certain segments of the industry the returns are likely to be lower. I see large international pension funds with very small teams covering big private equity programs and maybe they have little choice but to target larger funds. However, we want to be different from that. As a result, our private equity investment strategy is slightly biased toward on small to mid-size deals. While we will commit to large funds, we are prepared to allocate capital to a wide variety of PE firms within that small to mid-cap space to create a well-balanced, diversified portfolio.

Q: What plans are there for further expanding the alternatives team?

A: At present we don't have the capabilities or experience to participate in co-investment and direct investment. As our private equity exposure goes up, we expect more GPs will try and introduce co-investment opportunities to us. We need to recruit experienced professionals in this area. I hope that we can have these capabilities in place within about two years.

• Tweet  
• Facebook  
• LinkedIn  
• Google plus  
• Save this article  
• Send to  

• Topics
• North Asia
• LPs
• Fundraising
• Japan Post Bank
• Japan