March 26, 2025 — Japanese institutional investors are slowing their shift of portfolio allocations toward private assets.

In 2023, nearly 40% of Japanese financial institutions and more than a quarter of pension funds were planning to significantly increase portfolio allocations to private debt over the coming three years. Japanese investors were also bullish about future allocation increases to alternative asset classes such as infrastructure and private equity. 

However, among Japanese pension funds, endowments and foundations, the share of investors planning to significantly increase private debt allocations in the next three years dropped roughly 10 percentage points year-over-year to 16% in 2024. Private equity experienced an equal 10 percentage point drop to 10%. 

“Although Japanese pension funds, endowments and foundations remain committed to building up allocations to private assets, it appears they intend to move more deliberately in the coming year,” says Seiji Ishii, Head of Investment Management – Japan at Crisil Coalition Greenwich and author of Japanese institutions: Slowing pace of manager hiring, shift into private markets.

The change is even more dramatic among Japan’s financial institutions, which have embraced a more fundamental shift in near-term portfolio strategy. In 2023, financial institutions were planning a bold move into private debt, and, to a slightly lesser extent, private equity. 

These inflows were to come from meaningful net reductions in both domestic and international fixed income. In 2024, the share of financial institutions planning significant increases to private debt allocations dropped to 5% and not a single financial institution participating in Crisil Coalition Greenwich research in 2024 expects to significantly increase allocations to private equity in the next three years.

“The slowdown could simply reflect capacity constraints in a global private debt market that is still growing and maturing, and the many new internal challenges investors everywhere face in building up allocations to illiquid asset classes,” says Seiji Ishii. “However, the magnitude of some of these changes could suggest a broader strategic shift in the face of tightening by the Bank of Japan and the increase in JGB yields to the highest levels seen in decades.”

Fewer Manager Hires Overall
Traditional asset managers competing for business in Japan could be facing an increasingly challenging marketplace as asset owners slow expectations for manager hiring overall. In 2022, a volatile year for global financial markets, roughly half of Japanese institutional investors reported they would be in the market for new asset managers in the coming year. In 2023, that share fell to 40%. That slowdown continued in 2024 with only 28% of Japanese financial institutions and pensions funds indicating that they would be hiring a new asset manager in the next 12 months.