The retail investment market in Japan is gradually opening to private equity and other alternative assets as inflation rises.
Japanese households have long preferred to keep their capital liquid during periods of low inflation. They hold about $14 trillion in assets, more than half of which are in cash or deposits, according to professional services firm Maples Group. By contrast, US households keep 13% of their assets in liquid assets.
"As Japan moves away finally after 20-30 years of deflation and sees the rise of both interest rates and inflation, the retail investors' desire and needs for investments are increasing," said Satoshi Ishiguro, executive director at Daiwa Corporate Advisory Ltd. "There's a lot of increasing demand for that in Japan ... but it's still in a rising era."
S&P Global Market Intelligence data show Japan's consumer price inflation reached 3.3% in 2023, compared with an average of 0.5% from 1990–2022.
Japan's inflation remained above the 2% target for an extended period because of the yen's depreciation, record wage growth and the gradual expiration of energy subsidies, according to the ASEAN+3 Macroeconomic Research Office.
To support retail investments, the Japanese government recently expanded the Nippon Individual Savings Account, a tax-exempt investment scheme for individuals, according to Maples Group.
"The recent authorization for investment trusts to include unlisted shares in NISA [Nippon Individual Savings Account] portfolios is anticipated to enhance retail access to alternative assets," Maples Group said.
Private equity firms have begun offering retail investment products in Japan.
Sweden's EQT AB (publ), in partnership with SMBC Nikko Securities, plans to launch an investment trust for individual investors in Japan. Blackstone Inc. is considering offering privately placed funds, designed for institutional investors, to Japanese retail investors, Nikkei Asia reported.
"Japan is a deliberate market. It is expanding tax‑advantaged savings and cautiously enabling retail exposure. But institutional caution prevails. Pension allocations to alternatives are rising but remain tightly governed. Expect an incremental, step‑by‑step approach," said Kher Sheng Lee, co-head of Asia-Pacific at Alternative Investment Management Association (AIMA).
Asia opening to retail private equity
With the US allowing the $12 trillion 401(k) retirement savings market to invest in alternative assets, other economies in Asia are moving to open private equity markets to retail investors.
The Monetary Authority of Singapore has proposed a long-term investment fund framework for private market investment funds. The framework is designed to address the characteristics of private market investment funds and the needs of retail investors.
In Hong Kong, the Securities and Futures Commission clarified the requirements for closed-ended funds that invest primarily in private and less liquid assets that seek to list on The Stock Exchange of Hong Kong.
"Asia is opening carefully ... and regulators are designing guardrails for access. The goal is democratizing returns safely. It is a question of how and when, not if," said Lee of AIMA.
