Japan Post Bank Co. plans to spend an initial ¥100 billion ($915 million) directly buying stocks — when it finds the right opportunities.
The nation's second-largest bank by deposits, which currently invests in equities only through passive investments in funds, is eventually aiming to boost active stock holdings to several hundred billion yen in the next five to 10 years, said Katsunori Sago, executive vice president at the Tokyo-based company.
Japan Post Bank is also looking to buy more higher-yielding overseas bonds and alternative assets as it seeks to boost growth in an environment where returns are being depressed by the central bank's policies of negative interest rates and yield-curve control. The company has about ¥2 trillion in stocks through its passive trust investments.
"It's not right to only rely on passive investment for our stock holdings," Mr. Sago said in an interview with Bloomberg last week. "At the same time, making the whole ¥2 trillion portfolio active would end up being passive anyway, so we need both passive and active portfolios to gain an edge from the active investment."
Japan Post Bank, which was partially privatized in a $12 billion initial public offering of postal group companies in 2015, oversaw ¥207.5 trillion of assets at the end of June. Of this total, ¥66.9 trillion was in local government bonds, ¥55.3 trillion in cash and ¥51.3 trillion in overseas securities, which include debt and investment trusts.
The postal bank has already set up a new structure enabling it to directly invest in stocks, said Mr. Sago, who was formerly vice chairman of Goldman Sachs Group's Japan unit before joining Japan Post in 2015. The company will incorporate environmental, social and governance principles into the process for selecting equities for its active portfolio, he said.
Japan Post Bank's foreign bond portfolio has a bigger weighting in the U.S. than in Europe, though it does have holdings in Germany, France and the U.K., Mr. Sago said. The company has recently cut some positions that were underperforming or had negative returns. He said he expects holdings of Japanese government bonds to fall as it plans to avoid reinvesting funds from maturing securities.
"There is also scope to review the proportion between investment grade and high yield, with the aim of increasing high-yield allocations mostly overseas, when the timing is right," Mr. Sago said. "We have investments in junk bonds and high-yield bonds. If we see merit in light of our risk-return profile, we will invest regardless of the rating outlook."
Mr. Sago said one area of growth is in what the company calls alternative assets, which include investments in private equity and hedge funds. Japan Post Bank is aiming to boost holdings of these products to about ¥5 trillion or ¥6 trillion in the next five to 10 years, from the current ¥700 billion. The amount has already risen from ¥60 billion last September.
"Alternative assets are a major focus where investment needs to continue to be the strongest," Mr. Sago said. "We are aiming to build a solid alternative portfolio both in quality and quantity."
Japan Post Bank plans to add about 20 more front-office staff within the next 12 months in addition to its current total of about 140, Mr. Sago said. The new hires will mainly focus on alternative assets, he said.
The current investment environment isn't throwing up a lot of value and the company expects its sizable cash pile to increase for the time being, Mr. Sago said.
"There won't be a market environment for a while where we can reinvest all of the money we get from maturing bonds," he said. "There are not enough attractive investment destinations of this size."