Japan Pensions Seek Roads, Ports Assets as Population Ages
Japan Pensions Seek Roads, Ports Assets as Population Ages
Jonathan Alcorn/Bloomberg
A Burlington Northern Santa Fe (BNSF) train moves through Cajon Pass near San Bernardino, California. Buffett completed in February his biggest takeover, buying the 77.5 percent of Burlington Northern Santa Fe Corp. that Berkshire didn’t already own.
A Burlington Northern Santa Fe (BNSF) train moves through Cajon Pass near San Bernardino, California. Buffett completed in February his biggest takeover, buying the 77.5 percent of Burlington Northern Santa Fe Corp. that Berkshire didn’t already own. Photographer: Jonathan Alcorn/Bloomberg
Japan Pensions to Mirror Buffett With Infrastructure Investm
Qilai Shen/Bloomberg
Workers lay railway tracks under a newly completed highway overpass near a new railway station in Shanghai. Japanese pension funds are starting to invest in toll roads, ports and pipelines for the first time, seeking higher returns to meet the retirement needs of the world’s fastest-aging population.
Workers lay railway tracks under a newly completed highway overpass near a new railway station in Shanghai. Japanese pension funds are starting to invest in toll roads, ports and pipelines for the first time, seeking higher returns to meet the retirement needs of the world’s fastest-aging population. Photographer: Qilai Shen/Bloomberg
Japanese pension funds are starting to invest in toll roads, ports and pipelines for the first time, seeking higher returns to meet the retirement needs of the world’s fastest-aging population.
The pension of drugmaker Astellas Pharma Inc. plans to invest in infrastructure funds that target developing and emerging nations, while Shiseido Co.’s pension began investing 1.5 billion yen ($18 million) in U.S. and European assets this fiscal year. Nomura Securities Co., Japan’s biggest securities firm, in June teamed up with a government administrative agency to set up a fund for projects in emerging Asia.
“Diversification has become a must for pension funds as we’ve seen in the recent sell-off in stock markets,” said Yoshitaka Rokuta, executive director at the pension fund of Shiseido, Japan’s largest cosmetics company, in Tokyo. “I went all the way to Australia to look with my own eyes at infrastructure projects that are attracting investments such as toll roads and railroads.”
Japan’s private pensions, which oversee more than 60 trillion yen, are seeking reliable returns as retirees tap their benefits in a nation where the average lifespan reached a record last year and global equities struggle to recover from the financial crisis. Pensions are looking overseas to invest in roads, ports and power plants because most projects in Japan are run by the government and aren’t open to investments.
The MSCI World Index is down 13 percent from this year’s peak in April.
Allocation
Japanese pension plan returns have been hurt by low bond yields, an aging population and two decades of slumping stocks markets that has sent the Nikkei 225 Stock Average to a quarter of its 1989 peak. The nation’s top 278 companies by market value were a combined 21.5 trillion yen short on pension funding in the fiscal year ending in March, a 50 percent increase from the previous year, according to a study by the Tokyo-based Daiwa Institute of Research.
Japan’s public pension fund, the world’s largest with about 120 trillion yen in reserves, is considering infrastructure investments to diversify and will commission a study on possible assets as early as September, the fund said in August.
The average allocation to infrastructure as an asset class for a typical Japanese pension remains close to zero, compared with 5 percent in Australia, 4 percent in Canada, 3 percent to 5 percent in Europe, and 3 percent by the California Public Employees’ Retirement System, according to AMP Capital Investors. Calpers is the biggest U.S. pension fund.
Buffett’s Bet
The Canada Pension Plan Investment Board, the nation’s second-biggest pension manager, said Aug. 27 it will buy Sydney- based Intoll Group for A$3.44 billion ($3 billion) to gain stakes in toll roads in Toronto and Sydney.
Railroads, utilities and energy made up almost a third of the assets at billionaire Warren Buffett’s Berkshire Hathaway Inc. as of June 30, more than double from Dec. 31, according to the Omaha, Nebraska-based company’s latest quarterly report.
Buffett completed in February his biggest takeover, buying the 77.5 percent of Burlington Northern Santa Fe Corp. that Berkshire didn’t already own.
Long-Term Assets
Pensions are attracted to infrastructure investments because they can offer steady cash flows for decades and cover their long-term liabilities. Global investors’ allocation to the asset class will increase more than fourfold by 2012, according to a Russell Investments Ltd. survey released in June. It made up 0.3 percent of portfolios, the survey showed.
Developing countries each year need about $900 billion to maintain existing infrastructure facilities such as energy, transport, water and telecommunications, the World Bank said in a report published July 2008.
Infrastructure ranked as the top new asset class that Japanese pensions would consider investing in this fiscal year, according to a survey by JPMorgan Asset Management released in April. Seven out of 47 Japanese pensions started investing in the asset class in the fiscal year ended March, while four funds are considering new investments this year.
Liability-Commitments Marriage
“The long-term nature of infrastructure assets is quite attractive for pension plans because you can marry up the liabilities and the commitments that are made to your members over that long term,” said Graeme McKenzie, head of asset management for Oceania at Ernst & Young LLP in Sydney. “Internationally, there is a strong need for capital in relation to infrastructure and pension funds are seen as viable capital source.”
Astellas, Japan’s second-largest drugmaker, aims for alternative investments including hedge funds, private equity and infrastructure to account for 10 percent of the pension plan, said Ichiro Tajima, a managing director of the fund in Tokyo.
The fund began investing in the asset class in 2004 with an initial allocation to hedge funds, Tajima said. It wants to double the share of private equity to about 2 billion yen, while studying the possibility of infrastructure investments, he said.
Shiseido’s pension fund has allocated about 1 percent of its total assets to infrastructure, said Rokuta. The fund manages about 150 billion yen of retirement money, with a targeted return of 3.8 percent.
Still, the pace of investment growth in infrastructure assets may be slow, said Masashi Toshino, an analyst who covers pensions at Daiwa Fund Consulting Co. in Tokyo. Such assets tend to be less liquid, global economic growth may falter, and there is a lack of projects at home for Japanese investors, he said.
Nomura’s Fund
“Investors are reluctant to take any country risk at this time, so it may take a while to see any significant increase in infrastructure investments,” he said.
To reduce country risks, Nomura is teaming up with Nippon Export and Investment Insurance, a government-backed agency that will insure against country risks related to investments, said Toshio Sonoyama, the head of project finance in Nomura’s asset finance strategy department in Tokyo. Sonoyama declined to elaborate on details as the fund is still in the planning stage.
“Infrastructure investments are attractive because as long as there is economic growth, there will always be demand,” Sonoyama said. “They generally offer long-term steady cashflow and low correlation with traditional asset classes such as equities.”
To contact the reporters on this story: Tomoko Yamazaki in Tokyo at tyamazaki@bloomberg.net; Komaki Ito in Tokyo at kito@bloomberg.net
Rate These Stories
Rate this Page