Japan Teachers Fund to Invest Abroad as J-REITs Become Expensive

Japan’s Teachers’ Mutual Aid Co-operative Society will invest as much as 6 billion yen ($60 million) in real estate investment trusts mainly abroad this fiscal year after REITs at home became expensive.

The pension fund with about 600 billion yen in assets invested 5 billion yen in Japanese REITs in the fiscal year ended March 31 and doesn’t plan to increase allocations for now after they surged in value, said Toru Higuchi, a general manager in the asset management department in Tokyo.

The 39-member Tokyo Stock Exchange REIT Index has surged 44 percent this year on the back of the government’s plan to end decades of economic stagnation and deflation, even as a recovery in rents has trailed. The U.S. REIT market, the world’s biggest, offered an average 3.42 percent yield as of March 25, while that in Australia provided 5.24 percent, Japanese REITs returned 3.24 percent and U.K. trusts offered 3.93 percent, according to Mizuho Securities Co.

“The J-REITs are getting expensive based on the fundamentals, such as rents,” Higuchi said in an interview in Tokyo yesterday. “Unlike the mini bubble we have in Japan, the yields in global REIT markets, such as the U.S., Australia and the U.K., look attractive.”

The 527,000-member fund, which offers teachers coverage, including medical, automobile and fire insurance, earned returns on assets of 0.8 percent in the year ended March 2012, according to the most recent financial statement. That compares with a 2.3 percent return in the same period by Japan’s Government Pension Investment Fund, the world’s largest, according to its website.

Rental Decline

Office rents for Tokyo’s central five wards have been declining since the global financial crisis in 2008, according to Miki Shoji Co., an office brokerage company. They fell to a record low of 16,504 yen ($165) per tsubo in March, the broker said. A tsubo, the standard measure of property in Japan, is 3.3 square meters, or 35.5 square feet.

The office vacancy rate, which peaked in June at 9.4 percent, fell to 8.56 percent in March, it said.

The 48-year-old teachers’ pension fund last year adopted a new strategy to counter a decline in the value of traditional asset classes, such as stocks and bonds, which have made up the bulk of its main investments.

The fund is seeking a couple of REIT advisers to help manage investments in global REITs and may finalize its plan by June, Higuchi said. The pension will also look for one to two hedge funds to invest in, he said, declining to elaborate.

Fifty-five percent of Teachers’ Mutual’s assets were in government and corporate bonds in the fiscal year ended March, while Japanese equities accounted for 6 percent, followed by 4 percent in foreign bonds and overseas stocks, according to the fund. The rest was in cash and general accounts of life insurers, the fund said on its website.

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