Nippon Life Insurance Co., Japan’s biggest life insurer with about 50 trillion yen ($640 billion) of assets, plans to invest more in private equity and maintain its hedge fund allocations.
Less than 1% of the insurer’s assets are invested in private equity and hedge funds, said Hiroo Sakuma, deputy general manager of the company’s credit and alternative investment department in Tokyo. Private equity accounts for twice the investments in hedge funds, he said, declining to give the size of each holding. Nippon Life invested about 100 billion yen in hedge funds as of March 2009, according to the company.
“We’re still planning to gradually increase our allocations to private equity, seeking opportunities that make sense,” Mr. Sakuma said in an interview in Tokyo last week. “It’s been a very difficult market not just for us, but for the entire industry.”
Nippon Life has been investing in alternative assets for more than a decade. It currently invests in more than 100 private equity funds and about 30 to 40 hedge funds globally through its money management arms, according to Mr. Sakuma.
For private equity, there may be opportunities for distressed investments in Europe as banks sell assets, said Hideya Sadanaga, the head of the external fund investment and cash management department at Nissay Asset Management, in the same interview. Nissay Asset is Nippon’s money management unit and helps manage alternative investments.
Nippon Life targets an average annualized return of more than 3% in yen terms over a market cycle for hedge fund investments, Mr. Sakuma said. Eurekahedge Hedge Fund index is down 3.7% so far this year through November, heading for its first annual loss since 2008, when the index posted a record decline of 10%.
“New investments will depend on the situation with Europe,” Mr. Sakuma said. “Things are rapidly changing, and it’s difficult to bet on any one specific strategy per se.”
Strategies that exploit corporate events such as mergers, including long-short equity funds that bet on market catalysts, will be interesting investments among hedge fund strategies, Mr. Sadanaga said.
Nissay Asset also aims to expand its business by introducing alternative investments to Japanese pension funds, Mr. Sadanaga said. “Next year’s big theme will be absolute-return investments,” he added. “Demand for such products is definitely growing.”
