Illiquidity putting Japan pension plans off PE

The Russell 2012 Global Survey on Alternative Investing found that commitments to private equity are lower in Japanese LP portfolios - and in Asia Pacific and emerging markets in general - than in North American and European portfolios, with liquidity playing a role for Japanese pension funds.

Japanese investors are known for their aversion to risk. The typical LP is spooked by the down-and-up momentum of private equity's J-curve because of the long-term commitment they must make to a fund before returns are seen. As a result, they focus more on asset management classes such as hedge funds.

Of the institutions participating in Russell's survey, 32% expect to increase their investment over the next one to three years in hedge funds and private real estate, 28% in private infrastructure, 25% in private equity, and 12% in public real estate and public infrastructure.

Although respondents expected an increase to allocations broadly across the alternatives spectrum globally, Asia Pacific institutions are relatively more overweight for private equity (36%) and real estate (33%) than global respondents. Globally institutions were 22% and 17% overweight for PE and real estate respectively.

Public and private infrastructure investments currently command only a small share of institutional assets (just 1% of the combined asset allocations of all respondents), although Australian and Canadian respondents had higher allocations. However, private infrastructure investments appear to be attracting a growing portion of institutions' illiquidity budgets, which is expected to take share away from private equity.

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• Topics
• North Asia
• Australasia
• LPs
• LPs
• Japan
• Australia