The Japan Science and Technology Agency plans to commit directly to infrastructure funds from its ¥10 trillion ($62 billion; €57 billion) university endowment fund by the end of the year.
To date, JST has invested in infrastructure funds through gatekeepers, although it has begun investing directly in private equity and aims to extend this approach gradually to the rest of its alternative investments.
Speaking at the recent Infrastructure Investor Network Tokyo Forum, through a translator, JST managing director and head of global alternative investments Tadasu Matsuo described JST as an “ultra-long-term investor”.
Its Japan University Fund aims for a 3 percent net return – bumped up to more than 4 percent with the Japan consumer price index taken into account – which will provide an expected distribution of ¥300 billion to support university- and graduate-level students through their studies.
Matsuo said JST started investing in infrastructure funds in April 2023 and has since made commitments to more than 20 funds. He said the next step will be for JST’s alternatives management team to commit to funds directly.
“Gradually, but steadily, from the private equity side, we are starting this kind of direct engagement,” Matsuo said. “For real estate and infrastructure, by the end of this year, we’ll try to do the same.”
Matsuo underscored the resilience of alternative assets, including infrastructure, against market fluctuations, explaining that JST considers infrastructure to be “alternative assets with middle return, middle risk”.
“Expected return is not that high, as in the case of PE and venture investment, but [compared with] private debt and real estate, we may be able to have higher returns, cash dividends or annual dividends, and also exit returns, so we are able to strike a good balance here.
“In that respect, if you look at these four pillars of private assets, we can safely say that it is positioned in the middle of these four.”
Matsuo said the yen-dominated fund does not specifically hedge currency risk for alternative investments, instead relying on a natural hedge from long-term allocations.
Despite the yen’s recent devaluation, the fund invests globally as well as domestically, with significant investments in North America, Europe and Asia-Pacific.
Matsuo, who joined JST in 2022, told affiliate title Private Debt Investor’s Tokyo Forum last year that the fund was facing domestic hiring challenges as it built up its internal team.
JST executive director and head of private equity investments Yasuyuki Tomita also told affiliate title Private Equity International after joining JST in 2022 that Japan had a limited pool of experienced private equity professionals.
Last year, Matsuo’s team comprised 13 people across two units: one for private equity and private debt, and the other for real estate, infrastructure and real assets.
That number has now grown to about 18 people, increasing the team’s ability to invest directly in funds.
Matsuo has a track record of establishing alternative investment divisions, having previously implemented a similar strategy at Japan Post Insurance due to low returns from traditional investments.
Now at JST, his team has been establishing a portfolio “from scratch”.
“The first several years, we may have to suffer from lower returns, but we try to aim for the return of about ¥300 billion – that’s the mission that we are holding. We’ll try to achieve that goal as soon as possible.”
JST’s move to make direct LP commitments to infrastructure funds mirrors the approach being taken by fellow Japanese institution Government Pension Investment Fund, which is continuing to press on with investments in funds.
