The methods of how money flows around the world can be a strange and fascinating thing.
For instance, the lack of new infants being born in Japan, it’s “baby crisis”, may be driving up real estate prices in the United States.
Now here’s how this works, due to the ageing of the Japanese population, local Japanese insurance companies are forced to invest more of their capital in order to cover the pay outs on the older population.
With yields on many assets in Japan currently so low, these insurance companies are coming to the US to find investments that make solid returns.
According to Goldman Sachs Asset Management’s annual Insurance Investors Survey, one of the biggest growth spaces for these companies is private assets in the US, including real estate.
“We’ve seen a lot of Japanese insurers coming into the United States and buying US properties, we think that is going to continue,” Mike Siegel, Global Head of GSAM Insurance, told Business Insider.
“In Japan, you have a declining population, which means that over time you have fewer lives to insure. So these companies, if they want to continue their growth, need to go into another market.”
Siegel said that this is also happening for Chinese and Bermudan insurers, albeit for slightly different reasons.
According to the GSAM survey, which included CEOs and Chief Investment Officers of more than 276 firms with total assets over $7 trillion, real estate equity is the second-highest growing allocation for insurance investors of any asset class. 54% of all insurers said they are planning to increase or maintain their level of investment is real estate equity over the coming year.
Demand for US real estate by foreign investors, not just insurers, is skyrocketing in recent years, and is part of the concern over rapid levels of shelter inflation in places like San Francisco and New York City.
This isn’t just Japanese insurers and real estate, however, many foreign insurance companies across Europe, Asia, and other emerging markets are shifting their money to the US in order to find returns.
According to Siegel, these companies are gobbling up US debt, especially corporate debt, because the returns in their home countries are so low.
These returns are so low for two reasons, said Siegel, one being low economic growth but to an even higher degree, negative interest rate policies instituted by central banks in Europe and Japan.
“If you had higher yields in these countries, domestic companies would prefer to invest domestically,” said Siegel.
“But if you’re in Japan right now the 10-year [Japanese government bond] has turned negative. So if you’re a Japanese company there are limited opportunities in the Japanese fixed income market so you’re going to start to look into the US fixed income market.”
So this search for returns has shifted insurance companies’ eyes, along with their $26 trillion in total assets, to the higher returns in the US. From government bonds to even a condo tower down your street.
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