By Tomo Uetake and Hideyuki Sano
TOKYO (Reuters) – Nippon Life Insurance Co, Japan’s largest private life insurer, plans to double its investment in foreign real estate and infrastructure by early next year, its top investment official told Reuters on Tuesday.
The move came amid growing expectation that low interest rates in Japan and other developed countries are likely to stay for a long time and therefore the insurer will need a new source of income.
Nippon Life plans to commit a total of 350 billion yen ($3.2 billion) to investments in real estate and infrastructure, mostly in North America and Europe, through funds of funds, said Kazuhide Toda, the company’s chief investment officer.
The investment would be made gradually over years, by responding to fund managers’ capital calls. The size of its investments in alternative assets was likely to about 380 billion yen by early 2021, double the level at the end of the last financial year, in March 2019, Toda said.
Like many investors in Japan and Europe, Nippon Life’s profits have been squeezed by dwindling bond yields in Japan and elsewhere.
The 10-year JGB yield <JP10YTN=JBTC> stood at minus 0.04% on Tuesday, after having plunged to as low as minus 0.295% last September on fear of U.S.-China trade war.
Most European bonds also have negative yields while in the United States, now the highest-yielding among developed countries, 10-year Treasury notes <US10YT=RR> yield about 1.6%, compared with more than 3.5% decade ago.
Nippon Life expects investments in the alternative assets to yield about 8% and expects to be able to afford to invest more in such illiquid assets.
On top of yield enhancement, increasing exposure to foreign real assets brings more benefits in terms of diversification, Toda said.
Partly to fund increased investment in alternative assets, Nippon Life has been expanding the use of derivatives, such as interest rates swaps and options, in its fixed income portfolio in the yen, the core of its assets.
Including group firms, Nippon Life has total assets of 81 trillion yen.
($1 = 109.70 yen)
(Additional reporting by Kazuhiko Tamaki; Editing by Robert Birsel)