Japan Teachers Fund to Start REIT and Hedge Fund Investments

Date: Monday, September 24, 2012
Author: Katsuyo Kuwako and Kathleen Chu, Bloomberg

Japan’s Teachers’ Mutual Aid Co- operative Society, with about 600 billion yen ($7.6 billion), will start investing in real estate investment trusts and hedge funds as it seeks to diversify risks and boost returns.

The pension fund plans to add about 100 billion yen in new allocations for domestic and foreign stocks, overseas bonds, REITs and hedge funds this fiscal year ending March 2013, said Toru Higuchi, a general manager in the asset management department. About half of the money will be invested in foreign bonds, while Japanese and overseas REITs as well as hedge funds will take as much as 12 billion yen each, he said.

The 47-year-old organization is adopting a new strategy designed to counter a decline in the value of traditional asset classes, such as stocks and bonds, which have made up the bulk of its main investments. It is targeting annual returns of 3 percent to 5 percent, Higuchi said.

“We have decided to focus on return, so we decided to invest in J-REITs, global REITs, hedge funds and domestic and foreign stocks,” Higuchi said in an interview in Tokyo. “We need to have a certain level of return no matter how the market condition is.”

The 527,000-member organization offers teachers coverage, including medical, automobile and fire insurance. Teachers’ Mutual earned returns on assets of 0.8 percent in the year ended March 2012 and 0.5 percent a year earlier, according to financial statements. That compares with a 2.3 percent return for the year ended March 2012 by Japan’s Government Pension Investment Fund, the world’s largest, according to their website.

World’s No. 2

Japan’s $3.36 trillion in pension money is the world’s second-largest retirement pool, after the U.S., according to Towers Watson & Co. Japan was the only market among 12 that had a drop in pension assets because of the poor returns on local stocks and bonds, according to the report published in January.

In the year ended March 2012, 55 percent of Teachers’ Mutual’s assets were in government and corporate bonds, according to the fund. It had 6 percent of assets in Japanese stocks, 4 percent in foreign bonds and 4 percent in overseas stocks. The rest was in cash and general accounts of life insurers, the fund said on its website.

Teachers’ Mutual plans to meet payment needs by holding all of its 300 billion yen of bond investments until maturity, instead of selling them to track benchmark moves, Higuchi said. General accounts of life insurers worth 200 billion yen will remain unchanged, he said.

Japanese pensions have 31 percent of investments in equities and 59 percent in bonds, with only 6 percent in alternative assets, according to Towers Watson. That compares with 25 percent in such assets in the U.S. and 24 percent in Australia.

The Tokyo Stock Exchange REIT Index (TSEREIT), which has risen 19 percent this year, has a dividend yield of 5.1 percent, according to data compiled by Bloomberg. That compares with the 2.5 percent yield for the benchmark Topix index.

To contact the reporters on this story: Kathleen Chu in Tokyo at Kchu2@bloomberg.net; Katsuyo Kuwako in Tokyo at kkuwako@bloomberg.net