Aging Population Pushes Japan Oversees for Infrastructure

(September 2, 2010) — Japanese pension funds are beginning to increasingly invest in toll roads, ports, and pipelines in hopes of higher returns, as global equities struggle to recover from the financial crisis.

Drugmaker Astellas Pharma’s pension fund plans to invest in infrastructure funds of developing and emerging nations, Bloomberg reported. Meanwhile, Shiseido’s $1.8 billion pension began investing JPY1.5bn ($18 million) in US and European assets this fiscal year while Nomura Securities, Japan’s biggest securities firm, in June created a fund for projects in emerging markets.

In a nation where the average life span reached a record last year, pensions are turning their attention oversees to invest in roads, ports and power plants, as most projects in Japan are run by the government and aren’t open to investments, Bloomberg reported. Japan’s Government Pension Investment Fund, the world’s largest which oversees 122 trillion yen ($1.3 trillion), is considering infrastructure investments for diversification. The fund is expected to commission a study on potential assets as early as this month, the fund revealed in August.

An attraction to infrastructure investment has been seen globally to meet the retirement needs of the world’s aging population. A study by Towers Watson, published in early July, showed allocations to alternative assets — specifically to commodities and infrastructure — have continued to rise and now account for about 17% of all pension fund assets globally, up from 6% ten years ago. The survey showed Macquarie Group is the largest infrastructure manager of pension fund assets, topping the ranking, with $51.6 billion ($44.4 billion in 2008). Netherlands-based ING Real Estate Investment Management, JP Morgan Asset Management, and AEW Capital Management, LP, and Morgan Stanley followed.

Research by Russell Investments’ on alternative investing supports these findings, showing that institutional investors worldwide view alternative investments as an effective way to diversity their portfolios, with plans to boost their exposure to these investments in the years ahead. The Russell survey of 119 organizations throughout North America, Europe, Japan and Australia showed that over the next two to three years, pension funds, endowments, foundations and insurance providers expect to increase their allocation to alternative investments by more than a third, to 19% of their total investment portfolios. While real estate, private equity and hedge funds remain the preferred alternative types, the study showed commodities and infrastructure are also expected to make meaningful gains.