Japanese pensions to invest in RE secondaries

A boom from Japanese institutional investors buying secondaries real estate fund stakes could hit the market as early as next year, according to real estate firm CBRE.

Japanese pensions, including the Government Pension Investment Fund (GPIF), the world’s largest pension fund, may allocate about $1.8 billion to global real estate investment in the coming years, according to a report by CBRE released last Wednesday. Some of this could hit the secondaries market within about 12 to 18 months, according to an executive at the firm.

“The bigger guys are probably going to do more primary, but the smaller ones are going to invest in secondaries because they simply can’t access the market in any other way,” Mark Evans, head of Europe, Middle East and Africa equity placement at CBRE in London, told Secondaries Investor. “It’s probably the larger asset classes such as shopping centres, or big office vehicles, where they need to get diversification. You’ll see them going into the pan-European products as opposed to wanting to make a sector bet on London, Paris or Milan.”

Deal volume in real estate secondaries reached $4.8 billion in 2014, a $1.1 billion rise from 2013, according to private equity and real estate investor Landmark Partners. The rise is set to continue, particularly in Asia-Pacific, with private equity firm Partners Group anticipating that more than $44 billion of real estate assets will come to maturity in the region within the next five years, fuelling strong secondaries deal flow.

In October, the Federation of National Public Service Personnel Mutual Aid Associations, one of Japan’s ‘big four’ pension funds, said it was preparing to invest in alternative asset classes for the first Secondaries Investor‘s sister publication PERE reported. The pension, which currently manages about $65 billion, recently issued requests for proposals for external managers to provide it with opportunities in alternative assets.

Japanese funds of funds as well as trust banks including Sumitomo Mitsui Trust Bank and Nomura Trust and Banking will also start focusing on overseas real estate secondaries opportunities, Evans said.

Trust banks are a form of financial institution unique to Japan and were separated from bank trust departments in the 1960s to bridge the gap between banks and securities firms. They offer a variety of investment and banking services to corporate and individual customers including asset management, pension plan design, management, real estate brokerage and appraisal services.

While the potential investment from Japan is large, the process will be slow, as these institutional investors need to become comfortable with the primary market first before making secondaries purchases, Evans said.

“Japanese investors are slightly more cautious and want to do more due diligence than some of the other investors coming into the market,” he said. “That’s partly because of what happened to them in the last cycle and how they got burnt by high levels of leverage.”