Japan’s Largest Pension Taps Hamilton Lane

Hamilton Lane has received a big endorsement from Japan’s largest private-sector pension fund manager.

Last week, the 40-year-old Pension Fund Association, which manages roughly $110 billion in assets, revealed that it has hired the Bala Cynwyd, Penn.-based investment advisor to help shape its growing private equity portfolio. Hamilton Lane’s assignment will be to work closely with the fund to set its allocation targets, conduct due diligence on funds, and make recommendations.

It’s unclear yet what kind of funds Hamilton Lane plans to recommend for the Pension Fund Association. The association has to date backed several Japanese private equity firms, and a representative recently suggested it has also backed at least some buyout mega-funds through funds of funds. Speaking last month to a reporter from AsianInvestor.net, Daisuke Hamaguchi, an investment director at the Pension Fund Association, described three funds of funds to which it has committed capital as too expensive and too diversified. Specifically, the investment director complained that the advisors had been steering the association into mega-funds that it could instead invest in directly, saving an additional 100 basis points in annual management fees.

Speaking generally about international investors, Hamilton Lane Managing Director Tara Blackburn said that “globally, international investors are watching the U.S. with an eye of concern.” Beyond that, the Pension Fund Association appears eager to build a global, diversified private equity portfolio. Until recently, it invested almost exclusively in stocks and bonds—most of them Japanese. According to its Web site, as of March 2006 the association had allocated 37 percent of its assets to domestic bonds, 33 percent to Japanese exchange-listed companies, and 30 percent to foreign stocks and bonds. Presumably that was before it created an allocation to alternative investments.

Confronted with an aging population and clients hitting retirement age—the Japanese government estimates that one-fourth of its population will be receiving pension benefits in the next 20 years—the association has been dipping its toe into new areas to meet the bigger payouts it faces. Last summer, a spokeswoman told a Tokyo newspaper of the association’s burgeoning interest in real estate, which has been booming since 2005 thanks to the nation’s longest economic expansion since World War II. The spokeswoman also told Reuters last year that it had created a three-person alternative investment team, including one real estate specialist and one hedge fund specialist, and that it had, at that time, made one small investment in a hedge fund.

Altogether Hamilton Lane manages some $10 billion in private equity assets, and advises clients representing another $75 billion. Many of its clients are located outside of the United States, including Seventh Swedish National Pension Fund.—C.L.