Teachers fund to invest abroad as J-REITs become expensive

Bloomberg

The Teachers’ Mutual Aid Cooperative Society will invest as much as ¥6 billion in real estate investment trusts mainly abroad this fiscal year after REITs at home became expensive.

The pension fund, with about ¥600 billion in assets, invested ¥5 billion in Japanese REITs in the fiscal year that ended March 31 and doesn’t plan to increase allocations for now after they surged in value, said Toru Higuchi, a general manager in the society’s asset management department.

The 39-member Tokyo Stock Exchange REIT Index has surged 44 percent this year on the back of the government’s plan to end decades of economic stagnation and deflation, even as a recovery in rents has trailed.

The U.S. REIT market, the world’s biggest, offered an average yield of 3.42 percent as of March 25, while that in Australia provided 5.24 percent, Japanese REITs returned 3.24 percent and U.K. trusts offered 3.93 percent, according to Mizuho Securities Co.

“The J-REITs are getting expensive based on the fundamentals, such as rents,” Higuchi said in an interview Thursday. “Unlike the mini bubble we have in Japan, the yields in global REIT markets, such as the U.S., Australia and the U.K., look attractive.”

The 527,000-member fund, which offers teachers coverage, including medical, automobile and fire insurance, earned returns on assets of 0.8 percent in the year that ended in March 2012, according to the most recent financial statement.

That compares with a 2.3 percent return in the same period by the Government Pension Investment Fund, the world’s largest, according to its website.

Office rents for Tokyo’s central five wards have been declining since the global financial crisis in 2008, according to Miki Shoji Co., an office brokerage. They fell to a record low of ¥16,504 per “tsubo” in March, the broker said. A tsubo, the standard measure of property in Japan, is 3.3 sq. meters.

The office vacancy rate, which peaked in June at 9.4 percent, fell to 8.56 percent in March, it said.

The 48-year-old teachers’ pension fund adopted a new strategy last year to counter a decline in the value of traditional asset classes, such as stocks and bonds, which have made up the bulk of its main investments.

The fund is seeking a couple of REIT advisers to help manage investments in global REITs and may finalize its plan by June, Higuchi said. The pension will also look for one to two hedge funds to invest in, he said, declining to elaborate.

Fifty-five percent of Teachers’ Mutual’s assets were in government and corporate bonds in the fiscal year that ended in March, while Japanese equities accounted for 6 percent, followed by 4 percent in foreign bonds and overseas stocks, according to the fund. The rest was in cash and general accounts of life insurers, the fund said on its website.