Japanese corporate pensions look to shake up alts allocation

Japanese corporate pension funds are increasingly investing in alternative assets in order to generate income, as the proportion of their portfolios dedicated to domestic assets decreases, a survey shows.
Japanese corporate pensions look to shake up alts allocation

Income generation is a rising theme among Japanese defined benefits (DB) corporate pension funds.

These funds are showing waning interest in hedge funds within alternative investment, while also lowering their exposure to domestic assets.

Looking at the breakdown of alternative assets, income-generating assets increased on a year-on-year basis, according to the most recent survey of Japanese corporate pension funds by JP Morgan Asset Management (JPMAM).

Overall, investors are considering switching from hedge funds to income generating assets and private equity.

Kaguya Komatsu,

“Hedge funds have been underperforming amid difficult market for years. In general, DB pensions expects hedge funds to generate positive return when equity and fixed income are down,” Kaguya Komatsu, head of Japan funds business and institutional business at JPMAM, told AsianInvestor.

The DB pensions aim to construct a diversified portfolio which is expected to generate return in a stable manner. And here, they see an opportunity to prioritise private market assets over hedge funds within their alternatives allocation.

29.6% of respondents plan to increase their allocation to alternatives in the future. Here, private equity had the highest rate of votes, while private debt was also showing a stable growth pace, the survey revealed.

“Income generating asset classes have performed well as expected, especially in 2022 when both equity and fixed income struggled,” Komatsu said.


While the number of alternative assets was increasing, the share of domestic assets among the surveyed DB corporate pensions’ portfolios were declining year-on-year.

The share of domestic assets has been decreasing since 2008 when the survey was first conducted, Komatsu explained.

The main factors behind the trend include lower growth of the Japanese economy and the Bank of Japan’s (BOJ) continuous monetary easing including the previous era under BOJ governor Haruhiko Kuroda who served for a decade until April 2023.

Other key factors include the declining guaranteed interest rate for DB pensions and the historically struggling performance of Japan equities which, however, are seeing a revival started during 2023.

“To achieve the goal of 2% guaranteed interest rate, DB pensions do not need to invest in equity for high single-digit returns but at the same time, they cannot get that 2% from domestic bonds. This is why they’ve been allocating to foreign fixed income with FX hedged and alternatives, especially income-generating assets such as infrastructure and real asset which are expected to generate return in a stable manner,” Komatsu said.

The survey was conducted among a total of 81 Japanese pension funds, including 80 DB corporate pensions and one mutual aid. It showed that the average allocation to alternatives was 23.4% of the total portfolios, and the share has been steadily increasing.

The 2019 edition of the survey, for instance, showed a share of 21.3% of alternatives allocation, while it was 12.8% in the 2015 edition and just 5.4% in 2009.

¬ Haymarket Media Limited. All rights reserved.