GPIF

4th December 2015

GPIF, Japan`s largest pension fund, has around 1.15 trillion USD and intends on allocating 5% to alternative. There have been estimates of 1-3% going into real estate. GPIF is currently trying to expand its investment team and is also in the process of hiring an investment consultant in preparation for this. There is increasing hype surrounding its first investment and its every move is now being carefully monitored.

Experts are in no doubt that GPIF will invest overseas. GPIF’s model portfolio was created to establish long term income and for diversification.The Japanese real estate market is worth approximately 10% of the global market. In order to diversify, GPIF will have to step outside borders. Moreover many expect GPIF to target non speculative core strategies, but the 1.15 trillion USD pension fund will struggle to invest even 1% into the domestic core market.

Looking at GPIF`s model portfolio, one can see that 40% is for overseas investment. Analysts are expecting at least 50% of real estate investments to go overseas, as the market share of Japanese real estate in the global market is slightly higher than in the equity market.

 

 

Domestic Fixed Income

Domestic Equity

Overseas Fixed Income

Overseas Equity

Target allocation

35%

25%

15%

25%

The size of GPIF means it will have to take immediate action, especially in light of the fact that its model portfolio is dated from 2015 to 2020. The Norwegian pension fund,GPFG, provides an interesting case study.The pension (approximately 856 billion USD AUM) is slightly smaller than GPIF, but spent 5 years allocating 3% into real estate. Likewise, if GPIF is to deploy 3%, it will need to start soon. This is likely to be in the year 2016.

GPIF`s first infrastructure investment in 2013 hints at the first real estate investment being a co-investment. The investment was carried out through special structure: an investment partnership with the Canadian public pension OMERS and DBJ (Development Bank of Japan). The public records of discussions held by GPIF`s evaluation Committee, which is run by the Ministry of Health, Labour and Welfare (MHLW), show that the aim of the infrastructure investment was to invest with more experienced partners thereby gaining professional knowledge. A similar underlying logic might be adopted for GPIF`s first investment into real estate. However,  they may also choose to invest through pooled funds, funds of funds or separate accounts. Either way fund managers who manage large pension funds have a distinct advantage.

GPIF`s first overseas real estate investment is thought to trigger more Japanese investors including other public pensions to head in the same direction. 2016 is set to be an exciting year for the real estate market.

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For further details about Japanese public pensions and the Japanese LP market please contact: Yukihiko Ito (yuki@asteriskrealty.jp) / Kat Hoang (k.hoang@asteriskrealty.jp)

About Asterisk Realty & Placement Agency
Asterisk is a private fund placement agency for global alternative in Japan. Through our unique and extensive network of Japanese investors, we support global fund managers in accessing Japanese and Asian institutional investors (pensions, financial institutions, real estate developers, other business companies, etc.).

We provide access and strategies for overseas fund managers to bridge the gap between them and Japanese investors.

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