JPMorgan Eyes Japan Real Estate on Bet BOJ Persists With EasingBy and
Cheap leverage is available to enhance returns, Pil says
Central bank policies are diverging as Fed, ECB tighten
JPMorgan Chase & Co.’s alternative asset management unit is eyeing Japanese real estate and infrastructure, betting betting such investments will benefit from the nation’s lingering monetary stimulus even as central banks elsewhere start to tighten.
“Leverage is still very inexpensive in Japan, so you can use a degree of leverage to enhance returns,” said Anton Pil, managing partner of JPMorgan Global Alternatives. “Many foreigners want to get exposure to Japanese real estate because the Bank of Japan is on a different schedule” to other central banks, he said. Pil’s unit, which manages about $130 billion, is also buying other real assets in Japan including solar-power farms and ships.
Borrowing costs in Japan are likely to stay low as Governor Haruhiko Kuroda sticks with his policy of targeting bond yields and expanding the BOJ’s balance sheet to defeat deflation. In contrast, the Federal Reserve has started raising interest rates and the European Central Bank is preparing to pare back its stimulus.
As well as real estate, JPMorgan’s alternatives unit invests in infrastructure, private equity, hedge funds and liquid assets such as exchange-traded funds. Speaking in an interview in Tokyo, Pil said his unit has been an “active” buyer of residential buildings in Tokyo and Osaka. While less than 5 percent of its portfolio is in Japan, that amount is growing, he said.
The key is to not have “significant” leverage, said Pil, adding that he sees about 35 to 50 percent as an appropriate level. “If you go north of that, real estate doesn’t become the driver, but the leverage becomes the driver of your return.”
Alternative assets will become more attractive in the coming years as the Fed sells bonds to reduce its balance sheet, according to Pil.
Investors are seeking non-traditional forms of fixed income that generate cash and also serve as a hedge against inflation, he said. “That’s why both real estate and infrastructure have drawn the attention, especially of Japanese investors.”