INVESTING/PORTFOLIO STRATEGIES

Japan Post Insurance ramps up credit allocations, finalizes plans for alts

Japan Post Insurance Co. Ltd. is a step behind its sister company, Japan Post Bank Co. Ltd., in diversifying an „80.3 trillion ($700 billion) investment portfolio still largely anchored on Japanese government bonds, but it's moving to catch up. 

In May, Kampo, as the company is known in Japan, hired Atsushi Tachibana — a veteran of Dai-Ichi Life Insurance Co. — as managing executive officer, tasked with building the recently privatized insurance giant's investment team. Two months later, the company brought on Takayuki Haruna, chief operating officer and managing director of Japan Alternative Investment Co., as its head of credit and alternative investments.

Mr. Tachibana, in an interview, said Kampo has made progress in building the firm's investment team but needs to do more, both in terms of numbers and the depth of professional experience, to move from a portfolio focused on holding JGBs to maturity to one with a diversified array of foreign credit, equities and alternatives.

Kampo's investment team will reach the March 31, 2017, close of its current fiscal year with 140 members, up 20 from the start of the year, and should add another 20 during the coming year, he said.

Similar to Japan Post Bank, Mr. Tachibana said overseas credit will be Kampo's main target in diversifying its assets, followed — eventually — by allocations to alternatives.

Kampo began investing in offshore corporate bonds, mostly U.S., in a serious way in the current fiscal year started April 1, 2016, with allocations to investment grade, bank loans, high yield and taxable municipal bonds, said Mr. Tachibana. For the nine months through Dec. 31, the firm's allocations to foreign bonds jumped „2.2 trillion yen ($19 billion) to „6.14 trillion, or 7.6% of its portfolio, from 4.9% of the portfolio as of March 31, 2016).

In the same interview, Mr. Haruna said Kampo is still finalizing its strategy for moving into alternatives, and is hoping make its first investments in those asset classes during the coming fiscal year.

Both Mr. Haruna and Mr. Tachibana declined to say what Kampo's target for alternative investments would be, but Mr. Tachibana suggested it would be hefty, taking 10 years or more to invest properly.

For investors with the scale of Japan Post Bank and Japan Post Insurance, it's more a question of “what we can do than what we want to do,” said Mr. Tachibana.

Unlike Japan Post Bank, Mr. Tachibana said his team is strengthening its capabilities to make strategic allocations to public equities.

The firm's „1.54 trillion allocation to domestic equities as of Dec. 31 was, for the most part, passively invested by domestic trust banks, but since November, a new internal team — led by Kenichi Kuga, previously a senior fund manager at Mitsubishi UFJ Trust and Banking — has begun managing a concentrated portfolio of high-dividend stocks, Mr. Tachibana said.

Unlike pure bottom-up equity strategies that would require 20 to 30 investment professionals, an internal team that could eventually number 10 managers and analysts would be sufficient to oversee Kampo's hybrid top-down, bottom-up strategy, he predicted.

Mr. Tachibana declined to say how much the team is managing now but suggested it could grow substantially, noting one factor that could help retain staff would be a rare opportunity in the Japanese market to oversee a billion-dollar investment strategy.

The rise in foreign bond and domestic equity allocations lifted the portfolio's combined allocations to risk assets to 9.9% as of Dec. 31, just below the 10% target Kampo had set for the three years ending March 31, 2018.

Mr. Tachibana said that wouldn't prompt his investment team to put further allocations to risk assets on hold. “The goal isn't 10%, per se,” he said. “The goal is to achieve a return that exceeds our 1.7% liability cost, while controlling risk,” he said.

This article originally appeared in the March 20, 2017 print issue as, "Kampo keen on catching up with sister".