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The Pacific : U.S. Insurers Tapping Japan's Flow of Money

June 26, 1989|PETER H. STONE | Hartford Courant

Ever hungry for new investment deals, U.S. insurers are eagerly pursuing the huge pot of wealth that Japanese insurers, banks and trading companies want to invest in this country.

Insurers say Japanese institutions, which have become the leading investors in the world today, are especially interested in U.S. real estate, leveraged buyouts and high-yield bonds.

American insurers add that they can earn attractive fees for managing Japanese investments in the United States and offering Japanese investors advice. The total amount of Japanese investments being managed by U.S. insurers--as well as the income the companies make for these services--is not available.

But insurers are enthusiastic about the potential of this market.

Diversifying Client Base

"Japan will continue to be the major source of capital that flows across borders," said James Mallozzi, assistant vice president of Aetna Life & Casualty Co.'s international division. "As Aetna moves from being a domestic to a global institution, we have to diversify our client base. . . . We look at this as a long-term commitment."

Just this month, two of the largest U.S. insurers, Prudential Insurance Co. of America and Cigna Corp., closed investment funds that have many Japanese insurers and banks as investors.

Prudential has assembled a $300-million mutual fund designed especially for Japanese investors. Cigna has put together a $400-million fund--to invest in leveraged buyouts and private placements--that includes slightly more than $100 million in Japanese money.

Other large U.S. insurers, including Aetna, Travelers Corp. and the Equitable Life Assurance Society of the United States are trying to build long-term relationships with their Japanese counterparts and banks.

"The Prudential is really making a major commitment to this market," said Timothy Crist, vice president-Japan, at Prudential.

"There's been a consistent and increasing flow of Japanese investment in the United States. They're open to using outside advisers to learn about the different strategies for managing money and to improve their returns."

And for the Japanese, U.S. investments have clear advantages.

Higher Returns

"The Japanese like the returns because they're higher than what they can earn on their own domestic investments," said David Marks, senior vice president of Cigna Investments Inc. "Our market is very stable, and the Japanese are also attracted to it for this reason."

The U.S. Department of Commerce estimates that Japan's investments in the United States--real estate, manufacturing, wholesale trade, bonds and stocks--totaled $95.6 billion at the end of 1988, an increase from $71.2 billion at the end of 1987.

In real estate alone, the Japanese invested $16.5 billion in the United States last year, compared to $12.7 billion the year before, according to Kenneth Leventhal & Co., an accounting firm. This made them the leading foreign investors in U.S. real estate in 1988.

The Japanese have demonstrated similar clout in financing Wall Street deals by making huge investments in leveraged buyouts. Japanese investors, analysts say, contributed $5 billion to the $25-billion buyout of RJR Nabisco Inc. last year.

Prudential handles $1.5 billion in Japanese funds, half of which has been invested in nine joint-venture real estate projects. Prudential projects include Citicorp Plaza in Los Angeles, which was done with Ayrshire Corp. and Mitsubishi Estate Co., and the Nikko Hotel in Atlanta, which was done with Japan Airlines.

Japanese investors, including such life insurers as Asahi Mutual Life Insurance Co., Sumitomo Life Insurance Co. and Dai-Ichi Mutual Life Insurance Co., have invested in Prudential's U.S. High Yield Fund, a "junk bond" fund with total capital of $450 million that includes $350 million in Japanese investments.

Prospects for Business

Crist said Prudential, which opened a new office in Tokyo in January, had set up a task force 1 1/2 years ago to examine the prospects for business in Japan. After meeting with a number of Japanese financial institutions to improve its understanding of the market, the insurer decided to expand its commitment to business there.

Other insurers are also optimistic about Japan. Dillon Read Inc., a unit of Travelers Corp., opened a new office there in March and has already worked with Japanese investors on several deals in the United States totaling more than $1 billion.

"Our office is going to focus on the flow of capital out of Japan," said Neil Benedict, the managing director in charge of Asia and the Pacific. "Japan plays such a major part in the financial world because of their huge capital surpluses."

Benedict said Dillon Read advised Jusco, a Japanese company that last year bought a division of General Mills. Dillon Read is also discussing a few merger and acquisition prospects in the United States that Japanese investors are interested in pursuing.

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