Mizuho Global Alternative Investments Ltd. is aiming to raise 100 billion yen ($1.3 billion) by April as pensions seek out hedge funds vetted by larger firms following the AIJ Investment Advisors Co. scandal.
The wholly owned unit of Mizuho Corporate Bank Ltd. increased assets to 70 billion yen at the end of June, from 40 billion yen in March, said Chief Executive Office Manabu Ando. The company is currently offering about 10 to 20 overseas hedge funds to Japan’s corporate pensions that manage more than 70 trillion yen, he said, declining to name the funds.
Mizuho Global Alternative has seen increased demand from Japanese pensions, striving to fund rising payouts in an aging society, after AIJ was found to have allegedly lost more than $1 billion of mostly pension money by offering hedge-fund strategies. Twenty-one percent of retirement funds plan to boost alternative investments in the fiscal year started April 1, the most among 10 asset classes, according to JPMorgan Chase & Co.
“The AIJ incident became a trigger for many funds to review how they invest in hedge funds,” Ando, 52, said in an interview in Tokyo. “Japanese pensions have reached that point where payouts are exceeding contributions and they know that sticking to traditional assets will only lead to a deteriorating portfolio.”
The Eurekahedge Hedge Fund Index, which tracks more than 2,700 funds globally, has beaten the Nikkei 225 Stock Average every year since 2006. Japanese corporate and government pension assets managed by investment companies fell 4.5 percent to 79 trillion yen last fiscal year as payouts exceeded contributions, said the Japan Pensions Industry Database.
World’s No. 2
Japanese pensions oversee $3.36 trillion, the world’s second-largest pool of retirement assets after the U.S., according to Towers Watson & Co. The funds, which have traditionally invested mainly in bonds, have been expanding their strategies to maintain steady returns amid Europe’s sovereign debt crisis and a global economic slowdown.
Japan’s population fell by a record last year, underlining the struggle to boost growth and rein in soaring welfare costs in the world’s most rapidly aging society.
“With interest rates so low and volatility in stocks so high amid Europe’s sovereign debt crisis, alternative investments are becoming increasingly important,” Chief Investment Officer Shin Kubo said in the interview. “AIJ was a short-term negative event, but it did become a wake-up call in the long run for pensions to review their strategies.”
AIJ President Kazuhiko Asakawa was among four people arrested on suspicion of fraud last month. They allegedly defrauded pension funds in Tokyo and Nagano Prefecture of about 7 billion yen, according to the Tokyo Metropolitan Police Department.
Mizuho Global Alternative currently offers macro, equity long-short and multi-strategy hedge funds mostly from the U.S., Ando said. It screens about 1,000 hedge funds worldwide based on the three strategies and then shortlists them to about 30, eventually leaving them with 10 to 20 funds “qualified” to be introduced to Japanese clients, he said. Mizuho is focusing on funds with more than 2 years of track record and with assets under management of more than $500 million.
The company’s parent, Mizuho Corporate, is the corporate banking unit of Mizuho Financial Group Inc., Japan’s third-largest bank by market value.
Mizuho is also looking to offer hedge funds that will become an alternative to pensions’ bond investments, such as global macro funds or credit funds, Ando said. The company wants to hire more staff, including fund analysts and product managers, as demand increases, he said.
“We consider ourselves a trading company, where we import products that we think are adequate as a gatekeeper and that don’t exist in Japan,” Ando said. “There are many global hedge funds out there that have yet to be known in Japan, where the amount of investable money still remains pretty significant.”