Japan Post to up PE, other alternative assets exposure five-fold to $77 bn by 2021
Japan Post Bank Chief Investment Officer Katsunori Sago | Photo Credit: Reuters

Japan Post Bank has been buying local stocks since February’s major correction in global share prices, its chief investment officer said on Tuesday, as the risk of a spike in the yen, which would hurt stock valuations, is seen as limited.

However, Katsunori Sago said lingering economic and political risks have prompted the bank to boost its exposure to alternative assets, such as private equity and hedge funds, to 8.5 trillion yen ($77 billion) from 1.6 trillion now in three years, because of their favourable risk return profiles.

Since its partial privatization in 2015, Japan Post Bank, also known as Yucho, has been stepping up investment in risk assets, making it an outlier among risk-averse domestic financial institutions.

“A market correction of around 10 percent, which I had long been predicting almost like the boy who cried wolf, finally took place,” said Sago, a former Goldman Sachs executive, referring to global share sell-off triggered by rise in U.S. borrowing costs.

“A correction of similar magnitude does not seem likely in the near future. So we started building positions in ‘in-house’ active stock investments in February and March,” Sago told Reuters in an interview.

Yucho’s own investment team now manages around 30 billion yen of domestic stocks. It could shift more funds from some 2 trillion yen it currently entrusts to outside managers, he said. The bank, with its total assets of 210 trillion yen ($1.9 trillion), is one of the largest asset owners in the world.

Sago noted Japanese shares are vulnerable when the yen strengthens but added he expects the dollar to be fairly steady in a range between 105 and 115 yen this year, supported by the dollar's widening yield advantage. The currency last stood at 111.00 yen JPY=.

But he also said that scenario would be at risk if Washington starts picking up a fight with Tokyo on trade issues.

“Right now, the U.S. is preoccupied with China. But once that is settled, they could turn their eyes on Japan,” he said.

“If they focus not just on trade but also on currencies (to deal with trade imbalances), the dollar can easily fall 10 big figures, below 100 yen,” he also said, adding that he judges bets on currencies as generally having lower return in comparison to potential risks.

Thus Yucho is increasing risk taking most in alternative assets, such as private equity, real estates, hedge funds and private debt.

Sago oversaw Yucho’s transformation over the last three years from a massive state-owned buyer of government bonds to a more aggressive investor of riskier assets. He will step down on June 19 to join the board of SoftBank Group (9984.T).

“I believe the investment reforms have been completed.” he said.

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