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Japan Post Bank plans $60 billion boost to alternatives investments over next 3 years

Japan Post Holdings Co.
A replica post box on display at the Japan Post Holdings Co. headquarters in Tokyo.

Japan Post Bank will boost its combined allocations to private equity, real estate, hedge funds and private debt by roughly 7 trillion ($64 billion) over the coming three years to offset an expected decline in yields on the Tokyo-based bank's vast holdings of Japanese government bonds.

The 207.7 trillion bank's medium-term management plan for the three years through March 31, 2021, released last week, targets 8.5 trillion in alternatives investments by the close of that period, up from 1.6 trillion as of the March 31, 2018, close of its latest fiscal year.

A JP Bank spokesman declined to provide precise figures for the bank's targets for each category of alternatives, but a bar chart in the management plan pointed to investments of roughly 3 trillion to real estate, 2.2 trillion to private equity, 2 trillion to hedge funds and 1.3 trillion to private debt.

As of March 31, the bank reported 900 billion in hedge funds, 500 billion in private equity and 300 billion in real estate.

The medium-term plan pointed to incremental additions to the bank's huge allocations to foreign bonds, which stood at 57.6 trillion at the end of March.

The latest allocation targets point to an increased reliance on alternatives to power the Tokyo Stock Exchange-listed bank's earnings, with the combined 8.5 trillion total expected to come to 4% of its portfolio.

Katsunori Sago, the ex-Goldman Sachs Group (GS) executive who built the bank's investment team over the past three years, said in an interview with Pensions & Investments in early 2017 that allocating 3% of Japan Post Bank's portfolio to alternatives would be sufficient.

Earlier this month, Japan Post Bank announced that Mr. Sago, the representative executive officer, will retire around mid-June. Tokyo-based Softbank Group announced Mr. Sago will become a member of the firm's board of directors.

According to the medium-term plan, alternative allocations are expected to deliver 11% of the bank's net interest income, up from less than 1% for the latest year.

The bank's foreign credit holdings will contribute 63% of net interest income, down slightly from 64% for the fiscal year ended March 31.

Japanese government bonds and related instruments are expected to account for just more than a quarter of net interest income, down from 36% for the latest fiscal year. Their weight in the portfolio, meanwhile, will fall to 55% from 61%.