Updated:  New York:

Apr 27 200622:26  London:

Apr 28 200603:26  Tokyo:

Apr 28 200611:26 
 
Japan Pension Funds May Join Commodity Rush With 500 Bln Yen
April 27 2006(Bloomberg) -- Japanese pension funds may pour as much as 500 billion yen ($4.4 billion) into commodity-related investments over the next five years as they seek to diversify from stocks and bonds, American International Group Inc. says. 

Money managers in the world's second-largest pension market are considering putting as much as 3 percent of their portfolios into commodities, Masamitsu Tomohiro, manager of institutional business development at AIG Global Investment Group's Japan unit, said in an interview April 25. 

Investors worldwide are buying commodity-linked indexes and futures seeking to beat returns from stocks and bonds as concern about raw material shortages push oil and copper to records. The amount of money in commodity index investments may rise 38 percent to $110 billion this year, Barclays Plc has estimated. 

``There has been a surprisingly quick turnaround from interest to investment,'' Kirby Daley, head of sales and capital introduction at Fimat Alternative Investment Solutions, said April 25 in Tokyo. ``It took 10 years for institutions to switch to hedge funds, but it's much faster this time.'' 

Japan is the world's second-largest pension market by assets, worth $3.24 trillion, according to Bethesda, Maryland- based advisers Watson Wyatt & Co. The U.S. is the biggest. 

Crude oil in New York has risen 18 percent this year, copper in London has jumped 66 percent and zinc has soared 76 percent. By contrast, the Standard and Poor's 500 Index of stocks has gained 4.6 percent and U.S. Treasuries have dropped 1.2 percent, according to Merrill Lynch & Co. indexes. 

More Investment 

Investment in funds linked to the Dow Jones-AIG Commodity Index in Japan has jumped by almost 60 billion yen over the past six months, Jeffery Robbins, managing director of Banque AIG, Japan, said in an interview. Banque AIG markets the Dow Jones- AIG Commodity Index. 

Japan's Fukoku Mutual Life Insurance Co., which manages about $42 billion, is considering commodity futures-related investments, Yuuki Sakurai, general manager of investment planning at the company, said in Tokyo. 

``There is the need for risk diversification,'' Sakurai said by phone in an interview. ``If we are going to do it we would have to do it quickly.'' 

Japanese life insurance companies had assets totaling 194 trillion yen at the end of February 2006, according to the Life Insurance Association of Japan. 

`Seriously Studying' 

``There's a great number of pension funds seriously studying to include commodities as an asset class,'' said Haruo Miyako, chairman of Mitsubishi Corp. Capital, an investment fund adviser and securities trader. He was speaking at a commodity investment conference in Tokyo. 

Pacific Investment Management Co., the U.S. money manager known as Pimco, started a fund in Japan this year that's already grown to $200 million, said Robert Greer, product manager for the Pimco Commodity RealReturn Strategy Fund. 

The perceived volatility of commodity prices is a concern for Fukoko Mutual Life Insurance, Sakurai said. 

There may also be a lack of financial instruments with enough liquidity for large investments by Japanese pension funds, said Shinichiro Shiraki, who helps manage $120 million at Monex Alternative Investments Inc. 

``Liquidity is very important or the market will be prone to shocks,'' said Shiraki. ``Commodities markets still don't have the liquidity we see in stocks and bonds markets.'' 

Government Fund 

Japan's Government Pension Investment Fund, which manages about 100 trillion yen in assets, isn't yet considering commodity futures-related investments, Koutaro Kaino, a manager at the Tokyo-based fund's planning department, said. 

``This is a topic for the future,'' Kaino said. ``Given the large size of our assets, the effect of investment decisions on the market has to be considered.'' 

Hermes Pensions Management Ltd., which has a $1.8 billion fund based on a commodity index, expects investment in commodities to reduce a portfolio's negative returns from stocks and bonds, Charlie Metcalfe, deputy chief executive of Hermes, said in Tokyo. Even so, interest from U.K.-based pension funds may total less than $1 billion this year, Metcalfe said, referring to about five funds that may invest in the market. 

``The concept of a wall of pension money coming into commodities is overblown,'' he said at the conference. ``It's about adding commodities to the strategic mix of assets.'' 

One investor who's already convinced in Japan is Fumio Hayashi, an economics professor at the University of Tokyo, who did a study on commodities investments for AIG. 

``When sales people call on you, you're always skeptical, but after doing my own study, I've decided to put 10 percent of my savings into commodities this year,'' said Hayashi. 
 


To contact the reporter on this story:
Tan Hwee Ann in Tokyo at hatan@bloomberg.net;
Hector Forster in Tokyo at  hforster@bloomberg.net
Last Updated: April 26, 2006 20:58 EDT