TOKYO -- Japan Post Bank plans to start buying real estate investment trusts as soon as this fiscal year, joining life insurers and other institutions taking on riskier assets as low bond yields and negative interest rates make safe traditional strategies untenable.
The bank established a REIT-centric real estate investment department in February, advancing preparations to obtain permission for property investment. The Financial Services Agency intends to grant approval.
Japan Post Bank has 205 trillion yen ($1.83 trillion) in assets under management. High-yield foreign debt and other relatively risky instruments now account for 59 trillion yen of the total. Japanese government bonds made up around 40% of the bank's holdings at the end of December, falling below 50% for the first time.
The bank's target of 60 trillion yen in risk investment by March 2018 has already been met. How much of that amount REITs will account for has yet to be determined. The bank looks to include in its mix more assets seen gaining value in the medium term.
Nothing ventured, nothing gained
Negative interest rates at the Bank of Japan have only compounded the pressure put on banks' and other institutions' balance sheets by falling bond yields due to monetary easing. That has made branching out into new investment areas a necessity.
Life insurers, too, are beginning to explore higher-risk, higher-return strategies. Dai-ichi Life Insurance in February made its first venture investment in six years. The insurer is believed to have put some 1 billion yen into Beyond Next Ventures, a firm investing in companies that have come out of Japanese universities.
Dai-ichi froze its venture investments following the 2008 financial crisis. But poor returns of late have led it to rethink that strategy. The insurer invested more than 50 billion yen in fiscal 2015 in shares of growth enterprises and funds supplying capital to unlisted companies -- over 30% more than in fiscal 2014. Dai-ichi also looks to invest in a fund managed by Topaz Capital, which provides growth funding to small and midsize businesses.
Sumitomo Life Insurance, meanwhile, began investing last July in foreign-currency-denominated corporate bonds, putting around 50 billion yen into the instruments in the fiscal year ended Thursday. The insurer looks to grow that figure to several hundred billion yen this fiscal year. U.S. bonds are currently the core of these investments. But debt from Europe and elsewhere will be included going forward.
A group of seven regional banks including Yamaguchi Financial Group will team up to create an asset-management company in April, while Shizuoka Bank in March decided to put 100 million yen into a fund under SBI Holdings group member SBI Investment.
Regional banks had around 7 trillion yen invested with asset-management companies as of September 2015, the Nomura Research Institute reports. That figure is about three times the level from three years ago.
"A number of regional banks have an insufficient understanding of exactly what the funds they are invested in are doing with their money," NRI's Takamitsu Baba said. Institutions will need to ensure robust systems are in place to handle the new risks raised by higher involvement in companies, real estate and other investments.