Number of pension funds shrinks but assets relatively stable

Japan ended 2015 with 15,656 fund- and covenant-type defined-benefit (DB) pension schemes and 339 Employee Pension Funds (EPFs), a total 301 fewer than 12 months earlier. This marks the first time in 40 years that the aggregate number of job-based DB retirement schemes, all of which are now regulated by the Ministry of Health, Labour & Welfare, has fallen below 16,000.

The tally seems to indicate that the reforms of 2002 have almost run their course. Under the new regime qualifying, solvent EPFs were allowed to hand over to the Government Pension Investment Fund (GPIF) responsibility for managing their employees’ contributions to an optional official scheme (the daiko) which pays benefits additional to whose available from the national basic pension.

Around 40% of the 1,900 EPFs then in existence made the shift, thereby converting themselves into fund-type DBs each of which which is governed by its own boards. There were 615 schemes of this kind at the end of 2015, 110 fewer than at the start of the year.

Some EPFs shifted instead to being covenant-type DBs which are typically run by personnel or treasury departments or from the company president’s office. Most of these are former Tax Qualified Plans which once numbered around 66,000 though not even the Ministry of Finance – their supposed regulator – ever knew exactly how many there were.

TQPs did not have any daiko money to hand over to GPIF but their structure was reformed at the same time as that of EPFs in order to move their regulation to the Ministry of Health, Labour & Welfare and to close down those  no longer viable. At the end of 2015 there were 15,041 of them.

Much of the shrinkage in the number of both fund- and covenant-type funds in recent years has come from the restructuring of large conglomerates which has seen subsidiaries being absorbed into parents and the consequent merger of their pension plans.

As a result their aggregate assets under management have remained relatively stable (at least until September this year, the latest figures available) despite the huge sums handed over to GPIF and most now being past the point at which they have tipped into permanently having more going out to benefits than coming in via contributions. Also, many TQPs are lump-sum schemes.

© 2016 Japan Pensions Industry Database/Jo McBride. Reporting on, and analysis of, the secretive business of Japanese institutional investment takes big commitments of money and time. This blog is one of the products of such commitment. It may nonetheless be reproduced or used as a source without charge so long as (but only so long as) the use is credited to www.ijapicap.com and a link provided to the original text on that site.

This blog would not exist without the help and humour of Diane Stormont, 1959-2012

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Report of big shifts in pensions asset allocations poorly based

 “Japan’s corporate pension funds shifting from stocks to bonds” proclaimed the headline on a story in Saturday’s Nikkei. If true this would be very interesting but the report was poorly sourced and even more weakly substantiated.

The newspaper attributed the data on which its claim is based to reports by some 235 of the 300 companies which make up the Nikkei index, that have defined-benefit plans and “release details on their portfolios”.

So the information could have come from the companies’ annual filings with Edinet (Electronic Disclosure for Investors NETwork), or have been culled from the data provided to the Nikkei’s actuarial consultancy, R&I Information, by its clients, or be the latter’s analysis of the former.

Either way the story gives no general picture of percentage changes in allocations, puts domestic and foreign bonds into a single category and gives just three examples — Meiji Holdings, Tokyo Electric Power Co Holdings and Mitsui & Co — to illustrate supposedly widespread developments.

Also lacking is any indication of the degree to which market prices could have caused portfolio components to shrink or expand among the “60% of 235 companies” which the report asserts have “… taken [funds] out of the stock market”.

Least of all is there any mention of the extent to which the Bank of Japan’s massive stock buying, via ETFs, might be disrupting the market’s pricing-setting mechanisms.

The only reliable, well-based source of data on the asset allocation of corporate retirement schemes is still the annual survey of its members by the Pension Funds Association which disaggregates information by funds’ sizes and other characteristics.

The next such report will cover the year to 31 March 2016. The latest available is to 31 March 2015 and shown for reference below. The sequence from the top is 13.6% general accounts* (turquoise background colour), 6.0% short-term (grey), 10.3% other (orange), 15.6% foreign equity (cerise), 13.6% foreign bonds (green), 14.8% domestic stocks (yellow), 26.0 % domestic bonds (blue).

It is worth noting that the changes reported by the Nikkei for the three defined-benefit pension sponsors it names would not push their domestic equities holdings below the 14.8% average shown beneath. The only move well beyond the norms is Meiji Holdings’ alleged boost of its (domestic and foreign) bond holdings to 51% which is said to be in pursuit of the yield on ultra-long JGBs.

*General accounts are investment pools managed by trust banks and life insurance companies.

pfa-members-portfolios-at-31-march-2016

 

 

 

© 2016 Japan Pensions Industry Database/Jo McBride. Reporting on, and analysis of, the secretive business of Japanese institutional investment takes big commitments of money and time. This blog is one of the products of such commitment. It may nonetheless be reproduced or used as a source without charge so long as (but only so long as) the use is credited to www.ijapicap.com and a link provided to the original text on that site.

This blog would not exist without the help and humour of Diane Stormont, 1959-2012

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Mr Mizuno’s amour propre miffed again

Speaking this week at the tenth PRI [Principles for Responsible Investment] event organised by UNPRI, Government Pension Investment Fund CIO Hiromichi Mizuno remarked, as reported by Asia Investor, that his institution :

‘… suffered a [US]$50 billion investment loss in the second quarter of 2016, sparking a shocked silence. “Nobody laughed, so I will,” he added. “Volatility should be part of our daily business, but every time we report a quarterly result, there is a large public event.” Mizuno noted this was a problem for all public asset owners. “Their media relationship is a big headache” ‘.

Oh dear. This is so wrong it hard to know where to start but how about with (my emphasis) “public asset owners”.

The same public has not only a right but a duty to track what happens to money it contributed directly (rather than by way of general taxation) to its pensions. No CIO of a mutual fund would speak to his investors in this way.

If Mr Mizuno wants GPIF’s investors to better understand the performance of their (not his) portfolio, the answer lies with his employer. He should persuade the Fund’s hierarchy to publish  quarterly balance sheets showing both assets and liabilities so that the public and the media better see how the Fund is performing relative to its commitments — paying their pensions.

Speaking with derision of the journalists who are trying to explain it, often with more snootiness than co-operation from GPIF, is also unhelpful.

In March this year Mr Mizuno was quoted by Bloomberg as being ‘sick of seeing’ staff at other global pension funds looked ‘amazed’ when he told them that ‘only’ some passive domestic bond investments are managed in-house…. (See archive 28 March 2016 GPIF gets new boss as its role becomes increasingly confused.)

Then in May he was quoted by The Economist as asserting that the Fund’s shift to stock had been to prepare for inflation at 2% a year, the major aim of Abenomics. (See archive 27 May 2016 Shift in GPIF allocation was to beat inflation not to boost stocks.)

That aim now it seems to be something else but GPIF’s only objective should be meeting its obligations to pay pensions.

© 2016 Japan Pensions Industry Database/Jo McBride. Reporting on, and analysis of, the secretive business of Japanese institutional investment takes big commitments of money and time. This blog is one of the products of such commitment. It may nonetheless be reproduced or used as a source without charge so long as (but only so long as) the use is credited to www.ijapicap.com and a link provided to the original text on that site.

This blog would not exist without the help and humour of Diane Stormont, 1959-2012

 

 

 

 

 

 

 

 

 

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GPIF’s annual investment review could log progress far better

GPIF’s newly published English-language version of its investment review for the 2015/16 financial year is here.  The translation is later than usual and the numbers have not been converted from hundreds of millions to billions of yen as has been the practice in the past. So spreadsheet keepers beware!                                                  Post continues below graph.  GPIF bar chart of assets to 31 March 2016    Also missing is a clear explanation of how a drop in investment assets from 137,476.9 billion yen at the start of the year to 134,747.5bn yen at the end, a dip of 2,729b yen or 1.99%, comes to be reported as representing an investment return of -3.81% or a fall of 5,309.8bn yen ‘gross of fees’ (of 38.3bn yen).  GPIF total assets 2001-2016

If the holdings of Fiscal Investment and Loan Program paper (FILP, also known as zaito bonds) are excluded from the calculation, the difference in asset levels at the start and end of the year is a mere -0.88%.

Overall the report suffers from the same handicap as previous annual editions: it is a review of investments only and is therefore concerned solely with assets not with liabilities.

If the Fund were to publish its liabilities profile it would be much easier to judge how well it is doing relative to its goals.

© 2016 Japan Pensions Industry Database/Jo McBride. Reporting on, and analysis of, the secretive business of Japanese institutional investment takes big commitments of money and time. This blog is one of the products of such commitment. It may nonetheless be reproduced or used as a source without charge so long as (but only so long as) the use is credited to www.ijapicap.com and a link provided to the original text on that site.

This blog would not exist without the help and humour of Diane Stormont, 1959-2012

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Japan’s pension funds take usual places in world’s top 300

The UK arm of actuarial consultants Willis Towers Watson and US periodical Pensions & Investments have just published their annual ranking by assets of the world’s top 300 pension funds along with some analysis of the trends underlying the compilation.There are no surprises as far as Japan goes and few for anywhere else.

The report can be found here in full.

As in the past, users of the ranking should be aware that the numbers are in US dollars and shifts in exchange rates (which are yet again not stated despite years of requests) can change relative positions.

© 2016 Japan Pensions Industry Database/Jo McBride. Reporting on, and analysis of, the secretive business of Japanese institutional investment takes big commitments of money and time. This blog is one of the products of such commitment. It may nonetheless be reproduced or used as a source without charge so long as (but only so long as) the use is credited to www.ijapicap.com and a link provided to the original text on that site.

This blog would not exist without the help and humour of Diane Stormont, 1959-2012

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Q1 investment results from life cos put GPIF in the shade

The value of Japanese life insurance companies’ investment assets fell in the first quarter of the 2016/7 year by just 0.8%, new numbers from their trade body reveal.

This contrasts sharply with that from the Government Pension Investment Fund the value of whose portfolio fell by 3.88% (see posting below) in the same period which closed on 30 June.

At that time, life co investments — which are mostly managed inhouse —  stood at 356,875 billion yen compared with GPIF’s 129,701bn yen but their asset allocations were substantially different.

LIAJ members'Q1 numbers

© 2016 Japan Pensions Industry Database/Jo McBride. Reporting on, and analysis of, the secretive business of Japanese institutional investment takes big commitments of money and time. This blog is one of the products of such commitment. It may nonetheless be reproduced or used as a source without charge so long as (but only so long as) the use is credited to www.ijapicap.com and a link provided to the original text on that site.

This blog would not exist without the help and humour of Diane Stormont, 1959-2012

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GPIF looks to ride out downturns, others want it to quell them

GPIF Q1 2016 asset allocInvestment returns in the first quarter of 2016/17 at the Government Pension Investment Fund were roughly in line with their various  benchmarks with domestic bonds up 1.91%, Japanese equities down 7.38%, international bonds down 8.02% and foreign equities off by 7.6%.

The overall return on the Fund’s portfolio was thus a negative 3.88% for a loss of 5,309.8 billion yen, bringing it assets down to 129,701.2%bn yen.

While GPIF routinely says that losses of this magnitude do not put benefits payments in jeopardy, it does not publish its liabilities so it is impossible to tell.

One thing is certain: in about three weeks time one or more of the international news media will publish an item, most probably with a stock broker as its single source (though as the firm’s will not appear in full it will be impossible to distinguish it from a fund management house in the same stable), proclaiming that GPIF has considerable  room to buy more stocks,

Ergo it will buy more stocks and the stock market will rise. This is nonsense.

The Fund’s current allocations are shown above. Its policy is to have: 35% in domestic bonds plus or minus 10% at any one time, 55% in foreign bonds +/- 4%, 25% in Japanese equities +/-9% and 25% in foreign stocks +/- 8%.

The proportion of GPIF’s portfolio for which stocks account falls when stock prices fall and such movements can translate into either a stock buying or a stock selling opportunity.

In making its decisions, the Fund also has to consider the political climate. It invests the workforce’s contributions to Employee Pension Insurance and that proportion of the contributions everyone makes to the basic pension scheme which is not immediately spent on benefits.

The people’s representatives in the Diet are already expressing deep disquiet about the losses their constituents have suffered under GPIF’s asset allocation policy and are likely to make an even bigger stink if those losses become worse.

There are other external tensions too. As the Nikkei newpaper printed out on 29 August:

“Japan’s massive government pension fund and central bank apparently have become the biggest shareholders in well over 400 companies on the Tokyo Stock Exchange’s first section — nearly one-quarter of all issues. Concern has heightened that though the active buying buoys stock prices, it may be undermining market mechanisms” … may?

© 2016 Japan Pensions Industry Database/Jo McBride. Reporting on, and analysis of, the secretive business of Japanese institutional investment takes big commitments of money and time. This blog is one of the products of such commitment. It may nonetheless be reproduced or used as a source without charge so long as (but only so long as) the use is credited to www.ijapicap.com and a link provided to the original text on that site.

This blog would not exist without the help and humour of Diane Stormont, 1959-2012

 

 

 

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Pimco heads Government Pension Investment Fund fees list

The world’s largest institutional investor paid more in asset management fees to Pimco Japan in the year ended 31 March 2016 than to any other external manager – and for just two mandates

GPIF fees paid year to 31 march 2016An analysis of the Government Pension Investment Fund’s business during the term shows that of the 23 fund management firms whose services it used 15 were headquartered overseas and eight in Japan.

Fees paid followed almost the same proportions with foreign managers receiving, at 28,914.7 million yen, some 61.3% of the total of 47. 1 billion yen

Pimco Japan’s two mandates were for active management of international bonds – worth 549.0bn yen at the time the businesses was awarded — and another for actively managing domestic bonds worth 458.1bn yen.

The picture is similar to that 20 years ago when pensions management was first opened to competition. Foreigners quickly took the lead since they had the know-how and the Japan firms, mostly bank subsidiaries, did not. Moreover Japanese banks were on the brink of two decades continuous consolidation which blurred their focus.

In today’s low-to-negative interest rate environment where yield is hard to find the foreigners’ knowledge of sophisticated investment techniques and experience in faraway markets again gives them a solid lead. The complexity they handle shows in the fees. For example DIAM is being paid 1,169.3 million yen for actively managing 1,073.4 billion yen of domestic bonds while Pimco is receiving 1,279.9 million yen for managing 458.1 billion yen.

The difference now from two decades ago is that the Japanese banks are in robust health, have learned how to learn from others and are also competing against entrepreneurial start-ups often run by former staff.

For more detailed breakdowns of GPIF’s business see under ’The Giants’ tab above.

© 2016 Japan Pensions Industry Database/Jo McBride. Reporting on, and analysis of, the secretive business of Japanese institutional investment takes big commitments of money and time. This blog is one of the products of such commitment. It may nonetheless be reproduced or used as a source without charge so long as (but only so long as) the use is credited to www.ijapicap.com and a link provided to the original text on that site.

This blog would not exist without the help and humour of Diane Stormont, 1959-2012

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Post Insurance and Post Bank portfolios barely budge in Q1

The value and disposition of Japan Post Bank’s and Japan Post Insurance’s investment portfolios barely budged in the first quartet of the 2016~2017 financial year as shown below.japan Post Bank & Insurance securities portfolos Q1 2016

 

 

 

 

 

According to a subsequent Bloomberg story quoting Naohide Une, ‘managing director of the unit that oversees hedge fund allocations’, Post Bank is considering investment in smaller or newly created Asian vehicles of this type.

© 2016 Japan Pensions Industry Database/Jo McBride. Reporting on, and analysis of, the secretive business of Japanese institutional investment takes big commitments of money and time. This blog is one of the products of such commitment. It may nonetheless be reproduced or used as a source without charge so long as (but only so long as) the use is credited to www.ijapicap.com and a link provided to the original text on that site.

This blog would not exist without the help and humour of Diane Stormont, 1959-2012

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General insurers follow life cos into cash and foreign securities

At 23.1 trillion yen the value  of Japanese general insurance companies’ securities holdings were 1.9% lower at 31 March 2016 than a year earlier, according to their industry body.  Over the same period the amount they held in bank deposits rose 83.4% to 1.7tr yen, to account for the largest proportion of such holdings seen in recent years.

The numbers have some similarities with those of the 15 times larger life insurance sector whose results were covered on this blog on 15 June (see archive Cash up, local equities down in Japanese life cos’ portfolios).

The 23.8% rise in general insurers’ foreign securities holdings (a number which is not disaggregated) rose much more steeply than the 2.6% jump at their life co counterparts to 23.7% of  portfolios. This came despite the yen’s 6% rise versus the US dollar over the year — a move which diminishes the value of overseas investments when they are converted back to yen.

Japanese general insurers' assets 2016-3-31

 

 

 

 

© 2016 Japan Pensions Industry Database/Jo McBride. Reporting on, and analysis of, the secretive business of Japanese institutional investment takes big commitments of money and time. This blog is one of the products of such commitment. It may nonetheless be reproduced or used as a source without charge so long as (but only so long as) the use is credited to www.ijapicap.com and a link provided to the original text on that site.

This blog would not exist without the help and humour of Diane Stormont, 1959-2012

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