Nippon Life to Boost Private-Equity Holdings, Keep Hedge Funds

Nippon Life Insurance Co., Japan’s biggest life insurer with about 50 trillion yen ($640 billion) of assets, plans to invest more in private-equity funds and maintain its hedge-fund allocations.

Less than 1 percent of the insurer’s assets are invested in private-equity and hedge funds, said Hiroo Sakuma, deputy general manager of the company’s credit and alternative investment department in Tokyo. Private equity accounts for twice the investments in hedge funds, he said, declining to give the size of each holding. Nippon Life invested about 100 billion yen in hedge funds as of March 2009, according to the company.

Nippon Life is seeking to widen investments with alternative products after the global market rout WAS exacerbated by Europe’s sovereign debt crisis. Sixty-four percent of investors surveyed by London-based Preqin Ltd. said that they were relatively unfazed by the latest disturbances in the global economy and attitudes toward private equity haven’t changed, while 23 percent said they have become more attractive.

“We’re still planning to gradually increase our allocations to private equity, seeking opportunities that make sense,” Sakuma said in an interview in Tokyo on Dec. 9. “It’s been a very difficult market not just for us, but for the entire industry.”

Nippon Life, which has joint head offices in Tokyo and Osaka, has been investing in alternative assets for more than a decade. It currently invests in more than 100 private-equity funds and about 30 to 40 hedge funds globally through its asset-management arms, according to Sakuma.

Distressed in Europe

For private equity, there may be opportunities for distressed investments in Europe as banks sell assets, said Hideya Sadanaga, the head of the external fund investment and cash management department at Nissay Asset Management Co., in the same interview. Nissay Asset is the asset-management unit of the insurer and helps manage alternative investments.

Lured by the prospect of buying banks’ portfolios at discounts, U.S. hedge funds and private-equity firms such as Apollo Global Management LLC have raised about $7 billion targeting European distressed assets since 2009 and are seeking another $7 billion, according to Preqin.

The Japanese insurer “will maintain” its investments in hedge funds at the same level it invested as of March this year, Sakuma said, declining to elaborate.

No Specific Bets

Nippon Life targets an average annualized return of more than 3 percent in yen terms over a market cycle for hedge-fund investments, Sakuma said. Eurekahedge Hedge Fund Index is down 3.7 percent so far this year through November, heading for its first annual loss since 2008, when the index posted a record decline of 10 percent.

“New investments will depend on the situation with Europe,” Sakuma said. “Things are rapidly changing and it’s difficult to bet on any one specific strategy per se.”

Strategies that exploit corporate events such as mergers, including long-short equity funds that bet on market catalysts, will be interesting investments among hedge-fund strategies, Sadanaga said.

Nissay Asset also aims to expand its business by introducing alternative investments to Japanese pension funds, Sadanaga said. Japan has the world’s second-biggest pension market, with assets of $3.47 trillion after the U.S., according to Towers Watson & Co.’s 2011 Global Pension Asset Study.

“Next year’s big theme will be absolute return investments,” Sadanaga said. “Demand for such products is definitely growing.”

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