Japanese insurance giants are shifting more of their $2.6 trillion in investment money to private credit, giving a further boost to the growing asset class.
Dai-ichi Life Insurance Co. and Nippon Life Insurance Co. are among companies that are seeking more investments in private credit, attracted to their floating interest rates as global borrowing costs jump. Others are weighing making allocations for the first time as Japanese insurers wrestle with dramatically surging hedging costs for their foreign investments.
The private credit market, estimated at $1.5 trillion by Preqin Ltd., provides non-bank loans to borrowers, often risky companies owned by private equity firms. The asset class has been described as in a “golden era” in the current environment of inflation and rising interest rates. “Japanese institutional investors are increasing their allocations across private markets,” said Eric Chng, head of alternatives solutions for Asia Pacific at State Street. “We are seeing more either considering or have recently set up a private markets investment program.”
“We have been investing in private debt for a while, but we can pick up the pace to build up a bit,” said Yu Kosaka, deputy general manager at Nippon Life. “Floating-rate products offset rising hedge costs, so we can keep holding if they offer good spreads.” Japan Post Insurance Co. is considering whether to invest in private credit for the first time but is taking a wait-and-see approach as it assesses the risk of defaults and recoveries, according to Kei Takasawa, senior manager at the global credit investment department. That’s even after US money managers visited Japan to tout such assets following the pandemic, he said.
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