Japan Pension Makes First Direct Infrastructure Buy

(July 2, 2013) — A Japanese pension fund has joined a consortium of institutional investors to make its first direct infrastructure investment, as the country’s largest retirement scheme mulls a portfolio shake up.

The Pension Association, a federation of employees’ pension funds, has joined with infrastructure stalwarts, Borealis—an affiliate of the Ontario Municipal Employees’ Retirement System (OMERS)—to buy a gas-fired power plant in the US, the AFP reported.

Under the terms of the deal, OMERS will take a 50% stake in the Midland Cogeneration Venture in Michigan; the Pension Association will take 25%; the remaining quarter will be split between other partners, which include several Japanese financial institutions.

The deal marks the first time the pension fund—which oversees around $100 billion in assets—has broken out of its equities/bond portfolio.

At the end of 2011, the pension held almost 40% in equities, with the remainder in bonds, according to its website. The allocation is rebalanced depending on its funding level, and the 2011 portfolio construction suggested it was less than 100% funded at that time.

The move to invest in an alternative asset class comes as the largest pension fund in Japan—and the world—the Government Pension Investment Fund (GPIF), is set to branch out from its traditionally mainstream portfolio.

Some $70 billion of the GPIF’s $1.16 trillion is to be allocated to global bonds and equities, the Japanese Prime Minister announced last month, taking money away from domestic fixed income markets.

The shift was encouraged by Prime Minister Abe as a way to help the country’s economy to recover.

In April, a survey by JP Morgan Asset Management showed Japanese pension managers were intending to increase their allocation to international securities in the hunt for yield.