After joining alternatives investment rush relatively late, Japan’s Government Pension Investment Fund (GPIF) is now speeding up its allocation to the asset class after solid initial performances.
As of end June 2022, alternative investments made up 1.32% of the ¥193 trillion ($1.5 trillion) portfolio, amounting to ¥2.548 trillion. The alternatives portfolio was up from ¥1.456 trillion a year before, an increase of about 75% in one year.
While growth might not continue to be as rapid, GPIF is advertising for new alternatives managers.
“We are actively looking for more managers to improve the investment efficiency of GPIF’s portfolio,’” a spokesperson told AsianInvestor, referring to GPIF's manager registration system for alternative assets.
Currently, GPIF is looking for overseas fund-of-funds solutions. Here, managers will have to devote the capacity for GPIF mandates within separately managed accounts through which they spread investments across several different dedicated low-risk, low-return core fund vehicles from various managers.
For both infrastructure and real estate, the core assets primarily focus on income-driven returns. The fund-of-funds should be diversified globally for both private equity, infrastructure and real estate. For domestic real estate, GPIF is also looking for both fund-of-funds and single fund managers.
GPIF has currently set a hard cap of 5% of its total portfolio for alternatives. Nonetheless, the venture into the asset class has so far paid off, according to its annual report for fiscal year 2021 (FY2021).
As of end March 2022, the internal rate of return (IRR) was 5.85% in US dollars for all overseas infrastructure investments since February 2014, when infrastructure investments began at GPIF, and 3.24% on a yen-denominated basis.
The IRR for all private equity investments has been 11.85% in US dollars since June 2015 when GPIF started investing in private equity funds. GPIF’s domestic real estate investments started in December 2017, and the IRR was 7.32% as of the end of March 2022. For global real estate, the IRR has been 10.30% since the start in September 2018.
These returns provide GPIF with an upside compared to the more than 98% of its portfolio invested in public markets through either stocks or bonds.
The total annual rate of return for the fiscal year of FY2021 was 5.42%, measured up against an annual rate of return of 3.69% since FY2001. GPIF does not disclose annual rate of return for alternatives, the spokesperson said.
HIGH US EXPOSURE
With a good performance so far, GPIF is set to build its allocation to alternative investments. In FY2021, Mitsubishi UFJ Trust and Banking Corporation Investment was appointed a new fund-of-funds manager for Japanese private equity investments, with AI Capital as advisor.
This was the only newly appointed alternatives manager for FY2021, the spokesperson said, declining to comment on whether there were any ongoing processes for new alternatives managers in FY2022.
As of end March 2022, US investments took up the largest share for infrastructure, accounting for 26% of the total portfolio, followed by 22% in the UK and 9% in Australia. By sector, renewable energy made up 21%, communications 13% and utilities such as electricity and gas 11%.
US investments took up the lion’s share of private equity investments, followed by Asia. By sector, information technology is the largest with 37%.
In real estate, US investments were also the largest by country with 39%, followed by domestic Japanese investments with 29%, UK 10% and Australia 6%. Logistics assets made up 42% of the portfolio, followed by offices with 32%, rental housing at 19% and retail at 6%.