Preqin’s Real Estate Online currently features profiles of 64 Japan-based institutional investors that are considering or actively investing in private real estate funds, with these firms holding $7.7tn in assets under management. Pension funds represent a third of Japan-based real estate investors, although private sector pension plans (30%) are far more prevalent than their public sector counterparts (3%). Banks and investment banks (19%), asset managers (17%) and insurance companies (14%) also make up notable proportions of the Japan-based real estate investor population.
The majority (67%) of Japan-based investors have a preference for investing in private real estate funds focused on the Far East region. Despite this, there is still a substantial pool of Japan-based investors which are interested in venturing overseas for their private real estate investment; the largest proportion (38%) invest in globally-focused vehicles, and the more developed markets of North America and Europe are targeted by 36% and 31% of investors respectively. Interestingly, only 24% will invest in Asia-focused funds.
In terms of strategy, 70% of Japan-based real estate firms will commit to core funds. Such a trend could be due to Japan-based investors being cautious in their asset allocation, which is traditionally weighted towards equities and other more liquid investments. However, there are four solely Japan-focused funds on the road targeting $1.4bn for higher risk real estate vehicles, presenting investors with a range of platforms that provide exposure to Japanese assets. These include Asia Investment Partners AIP Japan Fund VI, which is targeting JPY 30bn for investment in senior homes within Japan.
Despite fluctuating growth prospects for the Japanese economy over the last year, Japan remains one of the most attractive investment locations for institutional investors, especially for domestic firms. As Japan-based investors look to gain higher returns from their investments, they will move part of their portfolio away from the traditional assets and towards alternatives, including real estate. An example of this is Japan’s Government Pension Investment Fund (GPIF); in March 2015, the pension fund stated its intention to invest 3-4% of its $1tn global portfolio in real estate as it increases its focus on alternatives at the expense of its domestic bond portfolio. As one of the largest pension funds in Asia, this move could encourage other Japan-based investors to follow suit.