Institutional Investors in Japan Target New Infrastructure Investments – September 2014

by Joyce Chee

  • 15 Sep 2014
  • INF

Japan-based investors are particularly important sources of capital in the Asian infrastructure market, making up the largest proportion (30%) of the top 100 infrastructure investors in Asia-Pacific with an interest in infrastructure, as demonstrated in a previous blog. Previously, infrastructure investment in Japan was traditionally dominated by government-related entities and infrastructure companies, with limited private participation by institutional investors. However, the easing of the PFI Law (Act on Promotion of Private Finance Initiatives) in 2011 has opened more doors for investment opportunities in infrastructure projects in Japan. Coupled with the introduction of Abenomics in December 2012, the investment climate for infrastructure has seen some favourable changes in recent years. Despite a late start in entering the asset class, Japan-based institutions are increasingly making their presence felt in the infrastructure space. A recent example is that of Government Pension Investment Fund, Japan (GPIF) making its maiden investment in the asset class. This move is significant as this could possibly encourage smaller pension schemes to follow suit. 

Preqin currently tracks details of 67 institutional investors based in Japan with an interest in infrastructure. Collectively, these Japan-based firms hold approximately $11tn in assets under management. A sizeable 81% of the investor pool gain access to infrastructure via unlisted vehicles. Thirty-eight percent of institutional investors in Japan have exposure through direct investments, while 22% invest in listed funds. While a small proportion of Japan-based firms currently have exposure to listed vehicles, this could possibly change in the short term. Japan Exchange Group, operator of Tokyo Stock Exchange, has intentions to create a new market in fiscal year 2015 to cater to funds targeting the upgrading or replacement of infrastructure assets in Japan. This new market will also list funds in the renewable energy sector and overseas infrastructure projects. 

Pension schemes form the largest proportion (28%) of these 67 Japan-based institutions interested in infrastructure. Banks account for the second largest (18%) investor type, while corporate investors and insurance companies each make up 15% of the institutional pool. Asset managers form 12% of Japan-based investors with an interest in the asset class, while government agencies comprise 6% of the investor pool. 

A noteworthy 75% of institutions located in Japan have a preference for the overall Asia region or specific economies within Asia. This trend is likely to continue going forward as a result of government-led initiatives. Japan Bank of International Cooperation has recently introduced a program to accelerate infrastructure investments in Indonesia as Japan-based firms begin to view Indonesia as a manufacturing hub for Southeast Asia. The program will insure Japanese banks against possible losses when they swap Japanese yen for Indonesian rupiah. Forty-seven percent of Japan-based investors are interested in European infrastructure, while 42% of the investor pool will target North America. Emerging markets and Australasia are favoured by 17% of Japan-based institutions.

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