Japan University Fund looks for more active managers
The Japan University Fund (JUF) is ready for a new phase of asset allocation with more emphasis on active, strategic investments, its co-chief investment officer told AsianInvestor.
The ¥10 trillion ($70 billion) university fund started making investments in March 2022, broadening beyond the initial focus on global government bonds and passive equity investments.
“We are gradually moving from passive investments to sector specific and active investments as the fund’s asset allocation evolves and the remaining capital is being deployed,” said Naoya Sugimoto, co-chief investment officer and head of the global investments department at the Japan Science and Technology Agency, which manages the fund.
JUF’s objective is to secure long-term and stable financial resources for Japanese universities as they seek to enhance their top global research output.
As of March 2023, the end of JUF’s fiscal year (FY2022), JUF maintained over ¥2.7 trillion ($19.9 billion) in cash and other short-term assets as dry powder, according to its FY2022 report.
During the ramp-up period of the fund, JUF will only disclose investment details and portfolio updates in annual reports to prevent unnecessary market impact, Sugimoto explained, when asked about the current level of undeployed funds.
SIMPLE START
JUF has defined its initial investment period as a two-year period ending this March. During this early stage, the focus has been on creating a simple portfolio with an emphasis on government bonds in developed markets, and then adding equities.
The approach has also been defensive due to downside risk as seen in the public markets in 2022, according to Sugimoto. The portfolio has therefore been built conservatively to start with, against a reference portfolio consisting of 65% global fixed income and 35% global equities.
As the portfolio has been gradually built to diversify investment timing, JUF will start to move further into more active investments and overall optimization. Absolute returns and downside risk control will be key considerations.
JUF will conduct passive, beta management, including of ETFs and derivatives, internally. Its fixed income department will also be in charge of liquidity management, including currency hedging, according to the co-CIO.
The firm is in the market for external, active managers for fixed-income investments in the emerging markets. Beyond this mandate, JUF is also soliciting proposals for active equities in the US and Japan as well as active fixed income in Japan. It is also looking to enter US high yield corporate bonds and US investment grade corporate bonds.
ALTERNATIVES INCREASE
As of FY2022, JUF held ¥5.4 trillion, or 54.6% of assets under management, in fixed income; ¥1.7 trillion (17.2%) invested in equities; and ¥64.3 billion (0.6%) in alternatives.
Along with the share of equities, alternative investments will also gradually increase as fund managers are selected and begin to call capital.
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Within alternatives, private equity investments will include private debt, while real assets like real estate and infrastructure will be managed as separate asset classes.
“We have a dedicated team for alternative investments. In terms of reaching our targeted internal staff overall, we are getting there,” Sugimoto said.
At the end of March, JUF had a total staff of 52 people split between 44 for fund management and 8 people in investment risk management. Staff size has since increased, Sugimoto elaborated.
MORE MANDATES
As the initial investment period draws to a close, JUF will increasingly issue external mandates for asset managers, particularly as the active and alternatives mandates rise.
“There will be public bidding on mandates, and we will continuously send out request for proposals in that regard,” Sugimoto said.
JUF aims to have its policy portfolio fully established by fiscal 2031, 10 years after the fund’s founding.
Once established, the fund will have a target return of more than 4.49%, due to a long-term payout target of 3% and an expected long-term inflation rate of 1.49%.
As a milestone target, JUF aims to have made investment gains of ¥300 billion, or 3% of capital, by the end of fiscal 2026, Sugimoto explained.
Japan University Fund's Naoya Sugimoto is part of AsianInvestor's Editorial Advisory Board.