Japan’s Biggest Bank to Bet $9 Billion on Riskier Asset Push

(Bloomberg) -- Japan’s biggest bank is planning to plow about $9 billion into a new investment team that will look to buy credit, equities and alternative assets in a bid to lift investment returns.

Mitsubishi UFJ Financial Group Inc. expects to begin buying the assets in the second half of this year that will likely focus on U.S. securities, said the group’s head, Yoshiaki Nemoto. His team will manage a new investment account, separate from the bank’s conventional securities portfolio, and will aim to grow assets to about 1 trillion yen ($9.1 billion) within three years, he said.

“We need to consider ways to boost returns,” Nemoto said in an interview, as low global interest rates endure at the same time as a hefty surplus of bank deposits.

Other banks in Japan have signaled efforts to seek higher-yielding assets as lenders face a sharp buildup in excess cash amid the pandemic. MUFG’s move is among the largest and may bring with it scrutiny from investors.

The new investment plan that “will surely carry higher risk weights raises concern over whether it could affect the group’s ability to boost future dividend payouts significantly,” said Michael Makdad, an analyst at Morningstar Inc.

Nemoto said his team emphasizes diversification, and will consider buying assets such as real estate investment trusts in addition to equity and corporate bond funds. He said while the portfolio will be geographically varied, the U.S. is likely to make up a large portion given its relatively bigger market size.

Further Expansion

The team, which was set up in April, currently has a staff of seven but that will likely grow and Nemoto said he may look to recruit from outside his firm in the future. MUFG is trying to design a new account that can make longer-term investments than the bank’s traditional portfolio management, which is constrained by short-term flows. The bank said the account size is likely to expand beyond 1 trillion yen in years ahead.

Nemoto said risk control is critical for the team and that’s why the buildup in assets will be a slow process at the beginning.

“It’s not easy,” he said. “There are attractive assets, but we will make investments after doing due diligence and building a solid risk management system.”

MUFG shares slipped 1.9% as of 10:28 a.m in Tokyo on Friday, while the Topix index of Japanese equities dipped 0.1%.

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