You may not be familiar with Peter Carey’s 2005 book, but it helps poke fun at my own preconceived notions prior to visiting Jones Lang LaSalle’s Research and Investment teams in Tokyo. Forget Lost in Translation or manga; what I was potentially wrong about was the increasing desire of some Japanese firms to invest more capital in foreign real estate for the first time since the collapse of the bubble in the early 1990s.
My theory, prior to last week, ran like this: there has been a natural catastrophe with dire human costs. Reconstruction will take several years and will force an already debt-strapped government to issue more public paper. Japanese investment firms will, out of a sense of national togetherness, purchase more JGBs than they would have before, meaning less capital to go abroad. I made no distinction between classes of investors, though my view was especially aimed at the pension funds. They are some of the largest in the world, yet have next to no allocation to real estate, especially foreign real estate.
The counter-argument is this: faced with a home market with weak economic prospects and exposed to future natural disasters, it is a rational decision to move more capital abroad, simply to diversify risk.
Speaking with clients and colleagues at a series of meetings last week, it is clear that I am both right and wrong. Investment firms are looking to commit capital abroad, included in real estate, though ‘where?’ and ‘how much?’ are still open to debate. Where I fear I will be “right” about Japan is its pensions funds: the earthquake, tsunami, nuclear energy crisis and subsequent reconstruction all make it highly unlikely that these institutions will acquire anything other than a lot more JGBs for the next few years.