Japanese LPs emphasize portfolio diversification - AVCJ Forum

“Just by increasing the number of GPs doesn’t mean you have achieved effective diversification, you need a lot of different strategies and timeframes,” Shuzo Takahashi, head of private equity investment at the Pension Fund Association (PFA), told the AVCJ Japan Forum. “Within this matrix, you have to establish what is the appropriate picture of diversification.”

He noted that it is difficult to find the right balance between having exposure to a reasonably wide variety of funds and focusing on high-quality managers.

PFA made its first private equity commitment in 2002 and now has approximately JPY400 billion ($3.6 billion) invested in the asset class. Japan Post Bank (JPB) and Japan Post Insurance (JPI) are comparative newcomers, having launched their programs in 2016 and 2017, respectively.

JPI has deployed almost $2 billion across private equity, infrastructure, hedge funds, and real estate over the last 12 months. It plans to commit approximately JPY1 trillion over the next three years. JPB’s target is even more ambitious, with alternatives exposure set to increase from JPY1.5 trillion to JPY8.5 trillion in the same timeframe. Private equity will account for JPY2.5 trillion of this total.

“We don’t pay attention to the number of GPs or funds. We seek diversification by region, invest in the managers we want to do business with, and after the fact we see the number of GPs,” said Tadashi Nishizawa, a director in the private equity investment department at JPB.

He added that JPB is now aggressively pursuing co-investment opportunities following the establishment of Japan Post Investment Corporation (JPIC), a direct investment unit backed by JPB and JPI. As such, there is a desire to have relationships with as many GPs as possible – but without diluting the quality of the deal flow. “You don’t want to overdo it. We cannot afford to lower the quality of co-investment,” Nishizawa said.

For JPI, one of the major challenges is securing access to top-tier managers. The pressure has increased in recent years as demand has arguably never been higher, with LPs globally looking to allocate more to the asset class.

“We are investors but at the same time, we are subject to selection by asset managers. If a fund is very popular, interest might be two or three times more than the capacity,” said Tadusu Matsuo, head of alternative investment at JPI. “As a new LP, to ensure a certain level of allocation we have to do marketing activities and convince GPs that we can be a long-term partner for them.”

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• Topics
• North Asia
• LPs
• Fundraising
• Japan
• Pension Fund Association
• Japan Post Bank
• Japan Post Insurance