Japan’s Sumitomo Mitsui Banking Corporation (SMBC) Pension Fund, managing assets worth 1 trillion yen ($6.6 billion), is poised to increase investments in illiquid alternatives, including infrastructure private equity and debt aimed at maximizing returns.

Anticipating a shift in domestic interest rates with the expected exit of the Bank of Japan (BOJ) from its ultra-easy monetary policy, the pension fund is considering reassessing its longstanding strategy of investing Japanese government bonds (JGBs), which has comprised only about 1 per cent of its portfolio for more than a decade.

Hirokazu Note, chief investment officer at SMBC, said at the 17^th Global Fiduciary Symposium in Tokyo on November 14, that his investment strategy has remained consistent since his appointment in 2011, driven by his commitment to enhancing returns through measured risk-taking.

In 2012, during the implementation of the so-called “Abenomics”, he significantly shifted towards equities while slashing holdings of JGBs.

“JGB holdings were reduced to about 11 billion yen of the entire portfolio of 1 trillion yen and that level hasn’t changed since then,” said Note.

However, he may consider reviewing this strategy in light of the prospective increase in domestic interest rates.

The pension fund holds a total of about 500 billion yen in domestic and foreign equities and also has kept its foreign assets unhedged. Note emphasized the fund’s long-term investment approach and the importance of not altering strategies based on short-term performance.

Liquidity, particularly short-term liquidity to meet obligations during a market crisis, remains crucial to the fund’s strategy. The fund holds three years of benefits in cash or equivalent in the general account.

SMBC Pension Fund classifies alternative assets as private equity, private debt, infrastructure and real estate, as illiquid assets. Note revealed plans to increase their allocation to 40 per cent from the current 30 percent. Additionally, it holds 13.5 percent in hedge funds, which it treats as a medium liquidity asset.

Expressing enthusiasm for investing in domestic venture capital, he stressed the fund’s mission to support these ventures.

“We are seeking to invest in venture capital of corporations or universities as we believe this is our mission. Although there is a risk for ventures to fail, we strongly believe they could lead to future national strength.

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