Japan Post Bank gearing up for change

Japan Post Bank, the country's biggest institutional investor with more than ¥200 trillion ($1.67 trillion) in assets, has lived in the shadow of the ¥141 trillion Government Pension Investment Fund's aggressive move into risk assets over the past year. Money managers say that could be about to change.

Listed Nov. 4 on the Tokyo Stock Exchange, JP Bank — which is restricted from lending the more than ¥175 trillion in deposits it collects from 24,000 post offices throughout Japan — must rely mainly on its skills as an institutional investor to reward its shareholders.

That makes the bank more like a sovereign wealth fund than a typical financial institution client, said a senior Tokyo-based executive with a global money management heavyweight, who declined to be named.

JP Bank's first quarterly earnings announcement as a listed company, on Nov. 13, showed the giant fund continuing to move relatively quickly in diversifying its fixed-income exposure.

Allocations to externally managed “investment trusts,” focused on offshore fixed income, rose by two percentage points in the three months ended Sept. 30 — or more than $30 billion — to 10% of JP Bank's overall portfolio.

A JP Bank spokeswoman said the bank doesn't provide a breakdown between actively and passively managed investment trusts.

The bank's direct investments in foreign bonds, a separate category, edged up to 9.89% from 9.83%. Both increases came at the expense of the bank's holdings of Japanese government bonds, which tumbled four percentage points to 45.25%.

Money management executives in the region, who declined to be named, said there have been enough active mandates in the mix to make JP Bank their most important client over the past year or so.

Having JP Bank as a client has effectively been what separates the winners from the losers when it comes to asset gathering this year, said the Tokyo-based head of one global money management firm.

An executive with another big manager said Japan Post accounted for more than half of his firm's Japan-related inflows this year, and speculated a number of other managers could probably say the same thing. With corporate pension plans in Japan relatively quiet at the moment, in terms of positioning their portfolios, “any big inflows for managers in recent months or quarters probably came from Japan Post,” said the executive.

JP Bank's other major allocations as of Sept. 30 include bank deposits, 19.1%; Japanese corporate bonds, 5.1% and Japanese regional bonds, 2.7%. The bank reported a negligible ¥935 million (0.0000045%) of investments in Japanese stocks.

The earnings release and investor relations materials, meanwhile, highlighted the steps the bank is taking to forge a world-class investment organization capable of managing a high-return, globally diversified portfolio.

They include the hiring of eight investment veterans with experience across a range of asset classes and investment vehicles, led by Katsunori Sago, a former deputy president of Goldman Sachs Japan, who was tapped in June to serve as executive vice president and head of asset management.

The JP Bank spokeswoman said, because of the blackout period related to the company's listing, Mr. Sago could not give interviews now.

Other veterans joining the bank in recent months include Naohide Une, who left as managing director and head of equity derivatives trading with Goldman Sachs in Tokyo to lead JP Bank's hedge fund investment efforts; Tokihiko Shimizu, a former top GPIF investment executive who was drafted to build an alternatives investments team focused on areas such as private equity and infrastructure; and two other Goldman alumni who left that investment giant in 2013 to launch hedge fund firm Golvis Investment: Kasama Takayuki, Golvis CEO, who was hired in late October as head of credit investments, and more recently Hoshino Taiichi, Golvis' chief operating officer, who will join Dec. 1 as head of external management. Golvis is closed.

The bank's earnings announcement said the goal is to boost JP Bank's profitability through greater allocations to active strategies, in traditional long-only asset classes, as well as allocations to alternatives investments in private equity, real estate, hedge funds and infrastructure.

One market veteran, who declined to be named, said JP Bank's initial target for alternatives allocations could be roughly equivalent to the $60 billion target set by GPIF. As of June 30, a mere 0.04% of the pension fund's assets had been invested in infrastructure.

While the two institutional giants have similar targets for alternatives, JP Bank is building its internal investment capabilities for those sectors more aggressively, noted the senior Tokyo-based executive with the global firm.

That should leave an increasingly diverse range of money management firms knocking on the company's doors. People looking for an efficient way to meet and greet the movers and shakers of the global money management industry should park themselves in the Starbucks closest to JP Bank's offices, said the senior executive.

A growing number of global alternatives firms have begun positioning themselves to pursue those opportunities. Brookfield Asset Management, a Toronto-based investor in property, infrastructure and renewable energy, and Highland Capital Management LP, a Dallas-based global alternatives credit manager, both have moved in recent months to open offices in Tokyo.

Meanwhile, executives with money management firms focused on long-only strategies say they're adding staff now to better serve both JP Bank and GPIF, reflecting the amount and specificity of information those organizations demand regarding their mandates

The funds basically want an explanation for every trade, said one U.S. manager, who declined to be named.