Japan pension funds have out-dated view on PE risk - AVCJ Forum

Speaking in Tokyo, Hidekazu Ishida, an advisor with Osaka Gas Pension Fund, said that, while many pension funds shied away from private equity, investing in other assets such as listed equities is potentially riskier because the investor has far less control over the asset.

"We should stop treating PE as a special asset class," said Ishida "It would be more suitable if PE was seen as an investment in the same category as equities, rather than taking the traditional approach of putting it in a separate box. That approach is outdated."

Ishida added that - putting issues over fees aside - private equity should be seen as fundamentally the same as investing in public equities. What is more important when comparing private equity and listed equities is to base one's judgement on where one is able to generate the best returns, he explained.

Ishida was responding to comments by Isamu Sai, a partner with Adams Street Partners, who said a survey by his company revealed that 53% of Japanese pension funds are reluctant to invest in PE because they do not understand the asset class and they were put off by the illiquidity risk. Many of these funds expressed a preference for traditional assets, including listed equities.

Yoshisuke Kiguchi (pictured) , CIO with Okayama Metal and Machinery Pension Fund, said the key issue was that many Japanese asset managers failed to understand the importance of diversifying their exposure across private and public equities.

"People say it is sufficient to just have listed equities but there is a lot of danger with that. For those of us who experienced the Lehman shock and the bursting of the IT bubble, it is a frightening asset," he said. "The majority of pension fund managers today know about the Lehman shock but worked in a different department - they did not experience prices plummeting day after day, so they think traditional assets are sufficient."

Kengo Torii, group manager at the Denso Pension Fund investment group, added that in his view PE is capable of generating some of the most reliable returns for Japanese investors.

"If you have a buyout involving an unlisted company, at an appropriate valuation, and a good GP that can spend three to five years providing on-hands support, that is perhaps the most certain way to generate good returns," he said.

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