It used to be that just the BOJ (via ETFs) and the largest Japanese pension fund, the GPIF (the largest in the world), had an implicit green light to allocate funds (in the case of the former, created out of thin air) to equities. That is no longer the case: according to Bloomberg, Japan’s second largest commercial bank, Japan Post Bank Co., has decided to follow in the footsteps of its giant peers, and plans to “plow” a 100 billion yen ($904 million) directly buying stocks “when it finds the right opportunities.”
Unable to generate required returns through conventional means such as lending, Japan’s second-largest bank by deposits, which currently invests in equities only through passive investments in funds, plans on becoming a giant prop-trading hedge fund and aims to boost active stock holdings to several hundred billion yen in the next five to 10 years, said Katsunori Sago, executive vice president at the Tokyo-based company.
In addition to stocks, the bank is also looking to buy “more higher-yielding overseas bonds”, (although in a time when junk bonds have near record low yields, one wonders just what the bank envisions) and alternative assets as it seeks to boost growth “in an environment where returns are being depressed by the central bank’s policies of negative interest rates and yield-curve control.” The allocation change is a huge departure for the lender which hold about 2 trillion yen in stocks, however, all these are nondiscretionary, through passive trust investments.
Speaking to Bloomberg, Sago said that “It’s not right to only rely on passive investment for our stock holdings. At the same time, making the whole 2 trillion yen portfolio active would end up being passive anyway, so we need both passive and active portfolios to gain an edge from the active investment.”
Currently, the bank, which was partially privatized in a $12 billion initial public offering, oversees 207.5 trillion yen of assets as of June 30. Of this total, 66.9 trillion yen was in local government bonds, 55.3 trillion yen in cash and 51.3 trillion yen in overseas securities, which include debt and investment trusts. Soon, there will be an “equities” pie in the chart below.
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