(Bloomberg) -- Dai-ichi Life Holdings Inc. is increasing investment in infrastructure as negative interest rates sap returns from government bonds.
Dai-ichi, Japan's second-largest life insurer, is investing at least 100 billion yen ($985 million) in infrastructure funds and real estate such as distribution centers in the year to March 2017, President Koichiro Watanabe said in an interview. That's 50 percent more than the average 67 billion yen a year allocated to infrastructure in the past three years.
Japanese insurers, who own about 38 trillion yen in government debt, are seeking alternative investments, with yields in negative territory even for long term bonds. Nippon Life Insurance Co. plans to allocate 40 billion yen to infrastructure through funds of funds, while Meiji Yasuda Life Insurance Co. said it plans to invest in energy and infrastructure projects in emerging markets.
Dai-ichi is planning to work with Japan Post Insurance Co., the country's biggest insurer by assets, so they can invest in large projects, Watanabe said.
“We are looking into middle-risks, middle-return opportunities such as project finance, infrastructure investment, airplane finance or real assets such as distribution centers,” he said. “It will depend on projects, but if we work together with Japan Post, that would increase the number of opportunities.”
The FTSE Global Core Infrastructure 50/50 Total Return Index has returned 13 percent this year, compared with the MSCI World Index's 3.5 percent gain.
“You see a lot of flow into this space because investors clearly don't want to invest in bonds,” said Benjamin Morton, a New York-based portfolio manager at Cohen & Steers Inc. which oversees $5.2 billion of listed infrastructure. “Investors are worried about the equity market because of the run we've had the past several years. They are looking for something that's in between the equity market and businesses that have bond-like characteristics in terms of predictability, like infrastructure.”
To contact the reporters on this story: Kathleen Chu in Tokyo at kchu2@bloomberg.net, Komaki Ito in Tokyo at kito@bloomberg.net, Peter Vercoe in Sydney at pvercoe@bloomberg.net. To contact the editors responsible for this story: Sree Vidya Bhaktavatsalam at sbhaktavatsa@bloomberg.net, Peter Vercoe
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