Partners Group and Mizuho Financial Group have teamed up to develop and distribute global private equity and infrastructure products to Japanese pension funds, reflecting a shift towards alternatives by a once-conservative investor group.

It will enable Mizuho Trust and Banking, a subsidiary of Mizuho Financial – Japan’s second largest bank by assets – to offer such products to its domestic retirement fund clients for the first time.

Swiss alternatives manager Partners has been seeking to further the distribution of its products in Japan's fragmented pension market, while Mizuho Trust wanted to expand its product offerings in PE and private infrastructure, says Junichiro Kawamura, head of Partners' Tokyo office.

Partners Group runs €30 billion ($41 billion) in AUM across infrastructure, private equity, private debt and real estate on a global basis.

The deal comes just two months after a Japanese government-appointed panel advised the country’s $1.2 trillion Government Pension Investment Fund and other major state pensions to diversify away from bonds into higher-yielding assets better help them to meet their liabilities. Such assets include private equity, infrastructure, commodities and real estate investment trusts.

Japanese pensions have a limited exposure to private equity and private infrastructure assets, Kawamura tells AsianInvestor. "One reason for these low allocations to our asset class is the lack of understanding and education."

Partners Group will support Mizuho Trust's efforts to educate pension schemes on the products being offered through the alliance, he adds.

Japanese pensions have long been big buyers of low-yielding Japanese government bonds. This has put them into a perilous position, as the country’s ageing population is making it difficult to match their liabilities.

"They tend to decrease their exposure to listed equities to reduce volatility," says Kawamura. Pensions are also mindful of a potential interest rate hike triggered by Abenomics, he adds, and have been seeking substitutions for certain portions of their portfolios. 

The returns of Japan’s largest retirement funds fell 1.2% during 2007-2012, according to Towers Watson. This contrasts with a 16.5% gain by Chinese pensions during the same period.

At the same time, Japan’s corporate pensions have recognised the need to diversify and have been steadily been increasing their exposure to alternatives, indicate surveys by JP Morgan Asset Management. As of March 2013, they had an 11.8% allocation to alternatives, up from 7.1% in 2009.                                       

Hedge funds are among the beneficiaries. Mizuho Global Alternative Investments, an affiliate of Mizuho Financial, told Japanese media last year that greater demand for its hedge funds by domestic pensions is expected to help boost its assets to $2 billion by March this year.