Low-interest rates, for indefinitely long periods, leave them with little option

Two-thirds of Japanese institutional investors have invested in at least one alternative asset class, as persistent low yields have pushed them to look beyond traditional investment routes, says Preqin.

Further, over the next year, almost all institutions with alternative investments were planning to add new investments, the report said.

Preference for private equity

Among alternative investments, private equity appears to be the investment of choice.

Ninety-six percent of PE investors (the highest in any category) plan to boost investments over the next year.

Sixty-one percent of PE investors have a preference for North America as a target.

Infrastructure funds playing catch up

The hunt for yield has pushed corporate pension funds and financial institutions such as insurance companies to invest majorly in overseas infrastructure funds.

ESG finding acceptance

Environmental, social and governance (ESG) and Sustainable Development Goals (SDGs) are now important inputs in the investment decision-making process of Japanese institutional investors.

Destinations of choice

Geographically, the Far East region (China, Hong Kong, Macau, Japan, Korea and Southeast Asian countries like Malaysia, Indonesia, Myanmar, Singapore, Philippines, Thailand, and Vietnam) is the destination of choice for investments in PE, real estate, infrastructure, private debt and commodities.

For investments in hedge funds, the investors look for opportunities globally.

What are their top alt picks for Japanese investors?

It’s worth noting. The nation’s investors have piled into private debt, private equity, infrastructure, foreign equities, and fixed income. This trend is likely to continue.

That’s due to the fact that rapid aging of the population also pressures Japanese institutions to increase returns high enough to service their mounting liabilities.