Japanese Pensions Boost Hedge Funds, Relatively Unaffected by Crisis

(April 26, 2011) — Japanese pensions are planning to increase investments in alternatives, lowering their allocation to domestic bonds and stocks this fiscal year, according to a survey by JPMorgan Chase & Co.’s Tokyo-based asset management unit.

In an effort to diversify and boost returns, 32% of the 119 Japanese pensions surveyed aim to bolster investment in alternatives, such as hedge funds, in the year ending March 2012, the study, obtained by Global Pensions, showed. The approach by Japanese pensions on alternatives mirrors the approach of large US pension funds, which are continuing to raise their direct allocations to hedge funds this year, according to a recent white paper released by Infovest21.

According to JP Morgan’s survey, approximately 14% of respondents intend to reduce investment in domestic bonds, with 21% expecting to lower allocations to local equities and 12% of funds planning to increase allocations to emerging-market bonds and stocks.

In addition, the study showed that nearly 89% of respondents said that the March 11 earthquake and tsunami that resulted in nuclear disaster does not have a “major” impact that will lead to a change of investment plans. The remaining 11% expressed concerns that investments may not be completed as expected or may be altered depending on the circumstance.

The long-term, relatively unconcerned view about the impacts of the Japan crisis on the investment climate follows similar views by consultants over turbulence in the Middle East.  

Matt Stroud, a member of Towers Watson Investment’s Global Investment Committee, responsible for the firm’s views on the economy and markets, said that Towers Watson Investment hasn’t witnessed a noticeable difference in regards to his clients voicing heightened concern about further turmoil in emerging markets. Adam Tosh, managing director of investment solutions at Rogerscasey, agreed. With Egypt representing such a small percentage of the MSCI Emerging Markets Index for equities, clients with a broadly diversified plan need not be concerned, while investors with a more Middle East and North Africa (MENA) focus may need to have a more serious conversation with their portfolio managers on how to handle risk, he noted.

Click here to view a video of Towers Watson’s Matt Stroud speaking with aiCIO about the continuing situation of uncertainty in Japan, the risks of heightened oil prices, and the future challenges for long-term investors.