Daido Life Insurance, a $58 billion (€38 billion) publicly traded Japanese insurance company credited with making private equity more palatable to Japanese limited partners, will increase its allocation to the asset class.
The firm will increase its commitments to private equity and hedge funds this fiscal year by roughly $500 million, general manager of investment planning, Akio Shinju, told Bloomberg.
“We aim to boost returns by increasing alternative investments, taking more risk than holding fixed-income assets,'' said Shinju. “We are not so interested in government bonds.''
For the fiscal year ended 31 March, Daido invested approximately $3 billion in private equity and hedge funds, with private equity returning 15 percent in local currency terms, Shinju said. Hedge funds, which were mostly investments denominated in US dollars, returned 2 percent.
Kazuki Nakamoto, the senior managing director responsible for the advent of Daido’s nearly 10-year old alternatives platform, previously told sister magazine PEI Asia that the J-curve effect associated with private equity is one of the most difficult aspects for Japanese pension managers to accept. Daido confronted this by using hedge fund profits to minimize the J-curve effect on early overall returns.
Eventually, he said, “CEOs will begin to see how important pension fund performance is for their companies. They will have to increase their exposure to private equity.”