Japan Post Bank Co., with $1.9 trillion to put to work, might be the biggest institutional investor in Japan looking to diversify a U.S.-dominated book of offshore credit exposures, but it's not alone.
There's a material increase in the number of Japanese asset owners actively looking to boost their European exposures, driven more by the rising costs of hedging dollar-denominated assets back to yen than investors' faith in Europe's macro or micro economic fundamentals, said Yasuhisa Nitta, Tokyo-based CEO of PGIM Japan Co. Ltd.
The same forces are prompting Korean investors to look beyond U.S. dollar-denominated debt instruments as well, said Simon England-Brammer, Hong Kong-based senior managing director and head of Asia-Pacific for Nuveen.
A Tokyo-based executive with one London-based money management firm, who declined to be named, said Japanese investors — slow to dilute their reliance on the huge U.S. credit market — have made a big tactical shift this year. The trade could persist for 12 to 18 months if the eight-year bull market can persist that long, he predicted.
Some money management executives see a more nuanced logic behind the growing interest of Japanese investors, and Asian investors more broadly, in Europe.
"The question of dollar hedging is a factor, but it's not the only one," said Thomas Friedberger, CEO and co-chief investment officer of Tikehau Investment Management, a Paris-based asset manager with €14.2 billion in private debt, real estate, private equity and liquid investment strategies.
The fast growth in Europe's loan market and the rapid development of its alternatives marketplace are also factors sparking greater interest from Asian investors, even as rising trade tensions and protectionist rhetoric from the U.S. provide further incentives to diversify exposures, said Mr. Friedberger.
Tikehau is dedicating "more resources to Asia" now to better handle the growing number of discussions with Asian investors, he said.
Asia-based investors accounted for 4% of the firm's assets under management at the end of 2017, up from zero two years earlier, according to data provided by the company.
Even a year ago, the number of Asian investors focusing on what their allocations to European bank loans should be, vis-a-vis U.S. bank loans, was relatively small, but with record M&A activity in Europe this year resulting in more bank loan issuance, those conversations have picked up considerably, said Vijay Rajguru, London-based global co-chief investment officer with $37 billion credit manager Alcentra Ltd.
Broadly speaking, Asian investors feel they'd like to diversify a little more into Europe than they have in the past, but with the U.S. bank loan market still five times bigger than Europe's, many have questions about the scale of allocations they'll be able to put to work there, said Mr. Rajguru. That, in turn, has left many Asian investors open to discussions about global, total return mandates that give Alcentra's portfolio managers discretion to pursue value wherever it can be found, he said. Mr. Rajguru declined to name new clients.