Japanese pension funds plan to boost investments in alternative assets even after the fallout of AIJ Investment Advisors, which allegedly lost pension clients’ money, a survey by J.P. Morgan Chase showed.
Retirement funds that plan to increase investments in the asset class, which includes hedge funds and private equity funds, in the current fiscal year that started April 1 totaled 20.6%, according to the survey by J.P. Morgan’s Tokyo-based money management unit. That was the most among 10 asset types.
Japanese pensions’ struggle to meet expected returns in the world’s most rapidly aging society amid sluggish markets was highlighted after AIJ allegedly lost more than $1 billion after offering hedge fund strategies. Many pension plans are reviewing their investment processes, including governance and managers, following AIJ, the survey showed.
Fifty-three percent of respondents said they paid attention to the AIJ scandal and it will affect their investments. Some 67% said they are implementing some sort of preventive measures.
AIJ oversaw 145.8 billion yen ($1.8 billion) of clients’ money and lost 109.2 billion yen from derivatives trades directed over nine years, the country’s Securities and Exchange Surveillance Commission said last month.
Almost 25% of pension plans lifted allocations to alternative assets in the last fiscal year.
Among other investments, 6.3% of pensions plans said they plan to increase investments in emerging markets bonds and 7.9% in emerging markets equities, the survey showed. By contrast, 26.2% plan to reduce holdings of domestic equities and 19% plan to cut foreign equities.
The stock benchmark Nikkei 225 stock average is about a quarter of its 1989 peak, while the 10-year Japanese government bond yield is at around 0.9%, the second lowest after Switzerland.
J.P. Morgan surveyed 126 Japanese pension funds in its preliminary report. It plans to release a full report in May.