Meanwhile, with Japan's government serving as the source of the endowment's capital, 10% in equity and 90% in super long-term loans, Mr. Kita said, "I have to consider the balance between stability or retaining … financial soundness and meeting the target return of 4.38%."
At the very beginning, the portfolio could overweight bonds and have some portion of cash while steadily making commitments to private equity, real estate and infrastructure — including secondaries in an effort to lessen the J-curve lag — leaving the portfolio ample room to rebalance during periods of market stress, Mr. Kita said.
Tail-risk strategies, whether involving derivatives or hedge funds, could be deployed as well, he said.
Mr. Kita said his experience making private equity investments at Norinchukin gives him a strong network of connections with general partners in that segment. For venture capital, by contrast, he said he will have to rely on gatekeepers early on, such as funds of funds.
While the coming investment oversight committee will make final decisions, Mr. Kita called the 5% limit the government currently imposes on public pension fund alternatives allocations too small to allow private equity, real estate and infrastructure to play a significant role in a portfolio.
Many observers see the market environment dawning now, as the Fed begins to taper its quantitative easing policies, as still largely positive for equities — even if moderately less buoyant than the past year or so.
The latest round of extraordinary policy support put in place in March 2020 came on top of an already accommodative policy mix, so beginning to pull back on those measures shouldn't be a death knell for equity markets, said Daniel Morris, London-based chief market strategist and co-head of BNP Paribas Asset Management's Investment Insights Centre.
"It's not like the Fed is shutting the party down," said Mark Anson, CEO and chief investment officer at Wilton, Conn.-based Commonfund Asset Management Co. Inc., a $26 billion outsourced CIO and private capital manager. It's more like they're setting limits on "what's going to be served at the party," he added.
Mr. Anson — who was the first of a handful of U.S. endowment veterans to appear before the experts panel advising the Japanese government on its endowment plans — said his team remains "reasonably bullish" about the outlook for equities and "slightly overweight" despite what Fed Chairman Jerome Powell said recently about moving up the timing of tapering.
Valuations are elevated now but private capital, illiquid assets and public equities remain reasonably attractive options for allocations, Mr. Anson said. "You … can't be a market timer. You still have to put that capital to work and go out and capture those long-term risk premiums," he said.