Japanese corporate pension funds, with about ¥60 trillion ($760 billion) in assets, may triple their allocations to alternative assets as they seek to reduce risks and boost returns, according to Credit Suisse Group.
Typically, 2% to 5% of pension fund assets are in alternative investments, including hedge funds, private equity and real estate, and this might grow to about 10% to 15% over the next two years, said Benjamin Happ, Hong Kong-based Asia-Pacific head of capital services in Credit Suisse's prime services division.
“What's interesting to us right now is how important the institutional investors in Japan are for hedge funds,” Mr. Happ said in an interview in Tokyo, where the bank held a conference for Japanese institutions and global hedge fund managers. “The investor base in Japan today is the largest and most important group of hedge funds investors in all of Asia, and we prioritize it accordingly.”
Japanese retirement funds face the world's lowest bond yield and a falling birthrate, which have curbed contributions. Thirty-one percent of 135 retirement funds plan to increase alternative investments from this fiscal year starting April 1, according to a J.P. Morgan Asset Management (Japan) survey in May.
Japanese institutional investors including insurers are now favoring single managers over hedge funds of funds as their level of sophistication in the $2 trillion global industry has increased, according to Mr. Happ.
By strategy, the highest demand is seen in macro funds, which seek to profit from broad economic trends; multistrategy funds, which invest in everything from equities to commodities, and equity long-short that profit from rising and falling stock prices, he said.
“In all three of those strategies, they are looking for managers that have the flexibility and creativity needed to generate profits in a year like 2011, which has been a difficult year for most investors,” he said. “Global hedge funds that are working to grow their presence in Japan need to have a long-term commitment to the investors here.”