Japanese Teachers' Fund Is Considering Investing in REITs to Hedge Risks

Date: Friday, June 18, 2010
Author: Bloomberg

Japan’s Teachers’ Mutual Aid Co- operative Society, which manages $7 billion on behalf of its members, may invest in real estate investment trusts for the first time to hedge risks.

The 45-year-old organization is re-evaluating its holdings after Japan eased rules on real estate investments by cooperatives, said Toru Higuchi, a general manager of the organization’s asset management department. Teachers’ Mutual Aid will complete and execute the plan in 2012, he said.

“What used to be considered ‘safe’ investments no longer exist,” Higuchi said in an interview in Tokyo. “When we think about investments that can be used to hedge against risks and offer stable return, REITs are the answer.”

Japanese pension funds plan to diversify after two decades of slumping returns at home and as the nation’s population ages. Thirty-seven percent of 69 Japanese pension funds surveyed by JPMorgan Asset Management (Japan) Ltd. plan to increase alternative investments that include real estate, according to a survey released on April 20.

Thirty-three percent of pension funds that replied to the survey said they plan to cut their holdings in domestic stocks.

In the year ended March 2009, 42 percent of the Teachers’ Mutual’s assets were in government and corporate bonds. It had 9.3 percent of assets in Japanese stocks, 9.8 percent in foreign bonds and 6.2 percent in overseas stocks.

Outperformers

The Tokyo Stock Exchange REIT Index has a dividend yield of 6.5 percent, according to Bloomberg data, compared with 1.8 percent for the benchmark Topix index. The REIT index has gained 2.1 percent this year, while the Topix has dropped 2.2 percent.

Teachers’ Mutual, which manages 639.6 billion yen, is also considering adding more U.S. government bonds, Higuchi said. “Growth rates in developed countries like the U.S. are likely to outpace Japan due to the country’s aging population,” he said.

The 537,000-member organization offers teachers coverage including medical, automobile and fire insurance. Teachers’ Mutual earned returns on assets of 0.3 percent in the year ended March 2010 and had a loss of 0.6 percent in book value in the previous year, according to its statements.