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Wednesday, January 9th, 2019

 

In 2018, we have observed major Japanese investors taking new actions to extend their footprints in global real estate markets. We are seeing strong motivations by all types of Japanese institutional investors including pension funds, financial institutions, insurance companies, listed REITs, real estate developers for global real estate investments.

GPIF, the world’s largest pension fund with AUM of ¥ 165.6 trn JPY (US$ 1.46trn as of end of September 2018), appointed Nomura Asset Management as Gatekeeper and Pantheon and DBJ Asset Management as Fund of Funds (FoF) Managers for its core strategy global infrastructure mandate during the first half of 2018. In September 2018, GPIF, announced its decision to appoint Asset Management One as a Gatekeeper, and CBRE Global Investment Partners as their FoF Manager for their core strategy global real estate mandate.

Throughout the year, GPIF have also emphasized on promoting ESG investments, steadily repeating its importance, and moving Japanese investors to follow this trend.

Chikyoren (Pension Fund Association for Local Government Office, aka. PAL) the second largest public pension funds in Japan with AUM of ¥24 trn JPY (US$211 bn as of end of September 2018), announced that they added private debt for its RFP for alternative investment managers in July 2018.

Shichousonren announced an RFP for infrastructure and private equity in the first half of 2018. The public pension as of June 2018 has an AUM of ¥12.1 trn (US$107 bn as of end of September 2018). As of last year, they have three product categories for a real estate RFP- domestic, US, and global (all core strategies).

Japan Post Group has also started overseas real estate investments over 2018. Both Japan Post Bank and Japan Post Insurance have announced plans to increase their overseas allocations in alternative investments, including real estate. 

Led by such large Japanese institutional investors, amount of potential capital to deploy to global alternative assets by Japanese investors in next a few years could reach 10 Trillion JPY, and global real estate is expected to be the biggest asset class in alternatives.

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Now it is rare to see Japanese investors who are not planning to overseas real estate investments. The domestic markets and Japanese investors’ appetites have changed significantly since 2012.

Major players such as Japanese public pensions, GPIF, Japan Post Group, and other major financial institutions are leading the outbound investment trend; and other players, including insurance companies, leasing companies, regional banks, corporate pension funds, and etc. are following the momentum.

Regarding direct investments, we are seeing Japanese developers and real estate companies strongly accelling into Southeast Asia markets. Different from the developers’ appetites, Japanese LP investors are still focusing on the matured global gateway markets including the US, Europe, and Australia.

Due to the U.S. interest rate hiking, more investors are gradually widening their investment scopes, adjusting their strategies and target markets now. Currency hedging is also a common proposition for most Japanese institutional investors now.

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Our Outlook for 2019 – Increasing Diversifications and Thematic Strategies

In 2019, we expect to see continuing outbound investments with more diversifications and thematic strategies from Japanese investors.

Geographic – Shifting to Europe and Australia

Geographically, we have observed some investors shifted from US to Europe markets during the past year. In 2019, we expect more investors will start to look at gateway cities in Europe and Australia markets, due to the concerns on interest rate hiking, currency hedging and market pricing in the US markets. However, it will not impact the position of US as a major  destination for them, especially for the investors who aim to build up their global portfolios.  

Asset Classes – More Debt Investment

In terms of asset classes, we have observed various investors keep debt funds on their watchlist over the last year. We expect there will be more capital going into debt investments in the next year.

Investment Strategies – Shifting to Core Plus / Value-added

Due to interest rate hiking in the US, the investment yields have been compressed, the returns of core strategies will be challenging to meet the investors’ requirements. We expect more investors will shift to core plus and value-added strategies.

Thematic Investments

Some investors will potentially be more actively looking for new thematic strategies for investments in 2019, including ESG, and macroeconomic changes such as demographic changes, urbanization, and etc.

Potential Challenges – Lack of Professional Human Resource

Although many Japanese companies are planning to offer global real estate investment services, only limited numbers of FoF managers / Gatekeepers might be available to provide services for Japanese institutional investors on global real estate investments. Even though the Japanese institutional investors have strong appetites for overseas investments, the lack of professional human resources could lead to potential delay in their overseas investment progress. 

 

Conclusion

Reliance with fund managers / local partners with well-established brand and reputation in overseas markets are essential for Japanese investors. As it is challenging for Japanese investors to invest in new markets overseas without enough experience and resources, it is safe options for them to invest through reputable asset managers as navigator/gatekeeper for overseas markets.

It is important for overseas fund managers to spend sufficient time and efforts to establish brand recognition and build trust with Japanese investors. Furthermore, if the fund manager has enough resource and business commitment in Japan markets, offering tailored reporting and services to cater the investors’ needs could be a good way to approach Japanese institutional investors.

 

Our Upcoming Event

In mid February 2019, we will hold a seminar event discussing about the updates and insights on global real estate markets for Japanese institutional investors. In this event, we will invite leading international investment managers to discuss about market updates across US, Europe, and Australia markets.

Our last global real estate seminar event held in October 2018 was well received, with over 60 industry leaders and professionals attended. Audience included Japanese pension funds, insurance companies, financial institutions, real estate asset management companies, and developers, etc.   

For further details about speaking opportunities at our event, our newsletter and our services, please contact :info@asteriskrealty.jp

To view more details on our previous events, please find the links below:

Recap of ESG Real Estate Investment Symposium for Japanese institutional investors
http://japanplacementagent.com/en/other/recap-of-esg-real-estate-investment-symposium-for-japanese-institutional-investors/  

Winter is Coming – Snow Resort Opportunities in Japan Inbound Luxury Hospitality Markets
http://branded-en.residence.jpn.com/portfolio/winter-is-coming-snow-resort-opportunities-in-japan-inbound-luxury-hospitality-markets/

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To view our past newsletters, please visit our website : http://japanplacementagent.com/en/

 

Asterisk Inc.,

3-29 Kioicho Gluckheim Suite 2003 , Chiyoda-ku , Tokyo , Japan

Telephone: 03-3263-9909

Email : info@japanplacementagent.com

Website : http://japanplacementagent.com/en/

 

 


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