GPIF sets stage for Japanese surge into foreign property

Japan’s huge Government Pension Investment Fund has just awarded its first global real estate mandate. Other asset owners are likely to follow with similar strategies.
GPIF sets stage for Japanese surge into foreign property

Many big Asian asset owners are keen buyers of international real estate, but Japanese institutions have largely been largely absent from that group – until now.

On Friday (September 21) the Government Pension Investment Fund (GPIF), Japan’s huge retirement scheme, revealed it had handed its first global property mandate to fund-of-funds (FoFs) manager CBRE Global Investment Partners, as part of a wider push into alternative assets.

It could be the start of a lot more. The ¥156.4 trillion ($1.39 trillion) state entity’s target exposure to alternatives, including real estate, is 5% (around $70 billion), but it had just 0.13% invested into such assets as of end-March 2018, according to the fund's latest annual report.

GPIF tends to set the pace among its domestic peers in offshore investing, and property experts predict other Japanese asset owners will unleash a deluge of capital into international real estate via funds and mandates in the coming months and years.

“There is significant demand from Japanese institutional investors to increase their exposure into international real estate assets,” said Tim Graham, director of international capital for Asia Pacific at real estate services firm JLL.

Likewise, Henry Chin, head of research for Asia Pacific at property services group CBRE, said his firm expects Japanese institutions – including pension funds and insurance companies – to raise their allocations to real estate.

The focus on real estate would mark a big shift for Japan’s asset owners. Like GPIF, the country’s sovereign institutions have almost no direct overseas property investments, Graham told AsianInvestor.

That contrasts with asset owners globally, which are targeting an average real estate allocation of 10.2%, according to a survey published in January by Inrev, Anrev and PREA.

Nobody that AsianInvestor spoke to for this story was willing to commit views on specific amounts Japanese investor could allocate to global real estate, or over what time frame. But were asset owners from the country to shift even one percentage point of assets into international property, it would account for billions of dollars.

Japan's pension funds are estimated to have over $3 trillion in total assets, according to Willis Towers Watson's Global Pensions Assets Study 2018 report.


GPIF, which already had ¥8.1 billion of local property exposure as of March 31, is likely to be a primary source.

The pension fund might issue further portfolios for global real estate, a spokeswoman told AsianInvestor, declining to comment on any possible time frame. She also declined to specify the size, duration or any terms of the new CBRE GIP mandate. 

It is also aiming to make direct investments into alternative funds, now that it is allowed to do so. 

GPIF invited pitches from FoF managers of alternative assets in April 2017, but could only invest into such strategies via FoFs and mutual funds, noted the spokeswoman. But earlier this year it won approval to make limited partner (LP)-style investments to general partners' funds. “However, we need more time to organise ourselves to start LP-style investments,” she said.

In the meantime, GPIF is also in the process of choosing FoF managers for its first moves into private equity. In addition, this year it hired two firms – Pantheon and StepStone Infrastructure & Real Assets – to run its first global infrastructure fund-of-funds portfolios.


Similarly, Japan Post Bank (JPB) – an even bigger entity, with $1.8 trillion under management – is moving to raise its exposure to alternatives, including real estate funds, to 4% by 2020 from 0.7% in March 2018. 

Henry Chin, CBRE

Moreover, local defined-benefit corporate pension schemes have been steadily building their alternatives and overseas allocations in recent years as they seek to boost returns, according to a survey published in June by JP Morgan Asset Management.

Their policy allocation to alternatives, which includes real estate, stood at 17.1% for fiscal year 2017, up from 11.4% in the 2013 fiscal year. And most (59.2%) of the DB funds surveyed indicated that they intended to continue increasing their allocations to alternatives next year. 


Other Japanese institutions are likely to follow in the footsteps of GPIF and JPB and build foreign property exposures through funds and mandates, Chin told AsianInvestor

He noted that Japanese investors prefer to invest into co-mingled funds, unlike those from China, Hong Kong, Malaysia, Singapore or South Korea.

Direct cross-border investment into real estate from Asian institutions totalled $25.3 billion in the first half of 2018, according to CBRE. Around a third (36%) of that came from Singapore, 22% from Hong Kong, 21% from China and 21% from other countries.

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