Oct. 28 (Bloomberg) -- Daido Life Insurance Co., with about 6 trillion yen ($64 billion) in assets, plans to invest in overseas real estate and credit securities after recent declines made them attractive.

Investments in overseas real estate, mainly in the U.S., as well as credit products such as bank and mezzanine loans, may eventually total about 100 billion yen, Akio Shinju, general manager of investment planning at the Osaka-based firm, said in an interview in Tokyo. The allocation will be in addition to investments in hedge funds and private equity, which stood at about 300 billion yen at the end of September, he said.

``We began looking at overseas investments, especially credit-related products, and with the recent move in the market, they are starting to provide some opportunities,'' Shinju said. ``These investments will become part of our alternative investments, following hedge funds and private equity.''

Daido Life, a unit of Japan's biggest publicly traded life insurer T&D Holdings Inc., began investing in hedge funds and private equity in 1999 to avoid low interest rates and a negative gap between guaranteed rates to policyholders and investment returns.

Japanese life insurers, mostly mutual societies owned by policyholders, need to boost returns because they sold policies in the 1980s with projected yields of as much as 6 percent.

Hedge Fund Investments

The insurer has invested about 150 billion yen in hedge funds through fund of hedge funds, with the main focus on the U.S., Shinju said. While the firm is sticking to a goal of putting 200 billion yen in hedge funds, given the current market turmoil, it's ``carefully considering'' whether to increase such investments, he said.

Private equity investments, including those in emerging markets such as India and Eastern Europe, and distressed assets stood at about 160 billion yen as Sept. 30, with about 140 billion yen committed and still to be invested, he said. In the fiscal second half, the company aims to put about 20 billion yen in new private equity deals, he said.

``We're seeking good asset management firms that are able to handle such investments right now,'' Shinju said.

Hedge funds are mostly private pools of capital whose managers participate substantially in the profits from their speculation on whether the price of assets will rise or fall.

Yen-Denominated Bonds

The biggest holdings in Daido Life's portfolio were yen- denominated bonds including loans, totaling more than 3 trillion yen as of the end of September, according to Shinju. Domestic equities followed with about 800 billion yen, while allocation to overseas bonds stood at 160 billion yen. Holdings of equities abroad were at 20 billion yen, while domestic real estate investments stood at 150 billion yen.

In the fiscal first half, the insurer cut yen-denominated bond holdings, including loans, by 50 billion yen, overseas bonds by 30 billion yen and equities abroad by 50 billion yen, Shinju said.

Investments of yen-denominated bonds will ``decline'' in the fiscal second half ending March 31, while so-called riskier assets such as domestic and overseas equities, and overseas bonds with and without currency hedges will be ``unchanged,'' according to Shinju.

Daido Life is one of three insurers merged into T&D Holdings, the Tokyo-based insurance company whose shares trade on the Tokyo Stock Exchange. T&D shares have lost 47 percent this year, compared with the Topix's 49 percent drop.

Daido Life's market forecasts:

                              Fiscal 2008         March-end
Japan's 10-year bond yields:  1.3%  - 1.7%             1.5%
U.S. 10-year note yields:     3.3%  - 4.1%             3.5%
Yen against the dollar:       98    - 106              102
Yen against the euro:         120   - 150              138
Nikkei 225 Stock Average:     8,000 - 11,500           10,000
Dow Jones Industrial Average: 6,500 - 10,500            8,000

To contact the reporters on this story: Tomoko Yamazaki in Tokyo at tyamazaki@bloomberg.net; Komaki Ito in Tokyo at kito@bloomberg.net

Last Updated: October 27, 2008 23:20 EDT