The Journal The Authority on Global Business in Japan

The Alternative Investment Subcommittee (AIS) will be celebrating its second anniversary in October. Formed under the Investment Management Committee’s leadership by co-chairs Chris Wells and Frank Packard, the AIS is the newest committee or subcommittee of the American Chamber of Commerce in Japan (ACCJ) and now has 106 members.

Increased global interest has established alternative investments as an important part of any investment portfolio, and the mission of the AIS is to educate and expand the perspectives of investors and industry participants in an entertaining and informative way, as well to advocate on timely topics.

What are alternative investments? It is a broad category, but the most widely accepted definition includes real estate, hedge funds, private equity and venture capital, infrastructure, and private debt. There are now $7.7 trillion in hedge fund and private capital assets managed globally, with an increase of $300 billion during 2016—more than 1.5 times the size of Japan’s GDP of $4.8 trillion.

A more expansive definition includes investments such as commodities ranging from oil and gas to precious metals, timber, and nuclear energy, as well as “passion investing” in unconventional asset classes such as art, photography, wine and spirits, jewelry, and vintage cars. AIS events cover these topics as well as the core areas.

The growth of alternatives is driven by the desire of institutional investors to diversify and maximize their returns, while decreasing exposure to the market volatility of traditional investment classes. At the same time, investment in alternatives provides opportunities for investors who actively seek to contribute to economic and social development by financing enterprises that are considered riskier (but with a higher return potential) in the hope that they can succeed and revolutionize industries or spark innovation to bring about significant positive changes. Investors in alternatives face a trade-off between the potential higher return versus less liquidity and transparency or disclosure than investments such as listed securities.

HUGE POTENTIAL
On a global level, alternative investments such as hedge funds have been around for quite a while, having risen to prominence in the 1990s. They have brought industry assets under management to a current total of $3.12 trillion globally. Until recently, Japanese investors have generally favored less risky investments in listed equities, debt, and bank deposits. But there has been a gradual change that has accelerated in part due to the Third Arrow of Abenomics and the introduction of Japan’s Stewardship Code and Corporate Governance Code. These guidelines have clarified the responsibilities of asset managers and others, and have increased the obligation for active voting and the proactive involvement of shareholders. This helps to encourage companies to sell their underperforming assets, and should help drive the demand for alternatives in Japan as their profile continues to rise.

While private equity and venture capital have been slower to gain popularity in Japan compared with elsewhere, the Japanese government is encouraging innovation and start-ups, and Japan is looking to the Silicon Valley model of financing. The global market size is huge; 2016 was the second consecutive year that the value of global venture capital deals exceeded $100 billion.

OUR ACTIVITY
To highlight the broad field of alternatives, the AIS has organized a quarterly Venture Capital Breakfast series that recently profiled the Stanford Center for Innovation Japan Award and Draper Nexus Venture Partners. The AIS has also hosted events covering infrastructure investment and alternative energy investment trends, the meeting of fintech and asset management (real estate), and issues that drive growth in environmental, social, governance (ESG) and corporate governance (ethical investing). We have also highlighted passion investing in David Bowie photos, whiskey, and antique jewelry.

Two upcoming events that capitalize on the above themes will involve Tomoyuki Furusawa, deputy director-general of the Financial Service Agency’s Planning and Coordination Bureau, speaking on the changes to the new Stewardship Code and seeking feedback from ACCJ members on corporate governance trends; and Hiromichi Mizuno, chief investment officer of the Government Pension Investment Fund, who will speak about investment drivers of ESG and diversity.

We hope to continue growing AIS membership, and that more members will attend our events to better understand “What is the Alternative?”—and to have fun while doing so.

Jenifer Rogers is vice-chair of the Alternative Investment Subcommittee
The mission of the AIS is to educate and expand the perspectives of investors and industry participants in an entertaining and informative way.