Japan’s No. 2 Pension Fund Aims to Double Alternative Assets

Japan’s Pension Fund Association for Local Government Officials (PAL), the nation’s second-largest pension fund, has announced its intention to double its holdings of alternative assets such as real estate and private equity. This strategic move aligns with global trends, as pension funds worldwide seek higher returns and diversification in the face of low-interest rates and aging populations.

PAL, overseeing approximately ¥35 trillion ($229 billion) in assets, aims to increase its alternative investments to near 5% of one of its main funds from the current 2.1%. This expansion is part of the fund’s broader diversification strategy, which also includes a shift towards foreign bonds and fewer domestic bonds.


In comparison to other major pension funds worldwide, PAL’s target allocation of 5% for alternative assets is relatively modest. For instance, the California Public Employees’ Retirement System (CalPERS) has an allocation of around 14% to alternative investments, while the Canada Pension Plan Investment Board (CPPIB) has an allocation of approximately 19%.


The potential risks and benefits of increasing alternative assets for PAL are similar to those faced by other global pension funds. Alternative assets can provide higher returns and diversification, but they also come with higher risks, illiquidity, and complex management requirements. PAL will need to carefully manage these risks and ensure that its alternative investments align with its overall investment strategy and risk tolerance.

The fund’s increased exposure to alternative assets may have a positive impact on the broader Japanese economy and investment market. By investing in real estate and private equity, PAL can stimulate economic growth, create jobs, and support local businesses. Moreover, the fund’s increased activity in alternative assets may encourage other institutional investors to follow suit, further boosting the Japanese alternative investment market.

In conclusion, Japan’s No. 2 pension fund, PAL, is set to double its alternative assets holdings as part of its diversification strategy. This move aligns with global trends and offers potential benefits and risks similar to those faced by other major pension funds worldwide. The fund’s increased exposure to alternative assets may have a positive impact on the broader Japanese economy and investment market, further solidifying Japan’s position as a global leader in pension fund management.