The value of Japan’s defined-benefit pension funds under external management in segregated accounts passed the 100,000 billion yen mark for the first time at the end of the financial year on 31 March 2014 and may have reached over 120,000bn yen.
The lower number forms part of the annual ranking of fund management firms by their DB retirement schemes assets under management which the Japan Pensions Industry Database compiles from returns submitted to the Japan Investment Advisors’ Association (JIAA) by its members.
Uncertainty about the exact total comes about because neither Mitsubishi UFJ Trust & Banking nor Resona Bank belongs to the Association.
When pension assets managed inhouse by the Government Pension Investment Fund and the Pension Fund Association – and thus not available to the market – are taken into account, the total under segregated external and internal stewardship mounts to over 165tr yen. A further 80,000+ bn yen is in pooled accounts at life insurers and trust banks.
JIAA members firms handled 103,542.1bn yen (US$1,005.17bn) on 31 March, up 12.6% on 12 months previously and well ahead of the prior peak of 94,301.50bn yen in 2010.
Mandates in issue rose just 1.85% to 5,230, suggesting that much of the growth in value came by way of accumulated investment returns rather than inflows of new money.
Sumitomo Mitsui Trust Bank, with a hefty 20,085.9bn yen, and Mizuho Trust & Banking, with 14,263.1bn yen, again led the list of 100+ firms which share the segregated business.
Next are BlackRock Japan and State Street Global Advisors (Japan) which swapped positions this time round to come in third and fourth respectively. Eight more of the top 20 firms are foreigners; a pattern repeated throughout the ranking in which almost half the players are headquartered overseas and include many majors. Text continues below table
In the Japanese context ‘defined-benefit’ schemes include: so-called ‘Employee Pension Funds’ (EPFs) and the ‘Fund- type’ DB plans which are superseding them, ‘Covenant-type’ DBs which have superseded what were formerly called Tax-Qualified Plans’, civil service Mutual Aid Associations, and the Employee Pension Insurance (EPI, or daiko) contributions managed by GPIF which also invests that part of public contributions to the basic pension not immediately used for paying benefits.
Since 2003 the market has become increasingly bifurcated between corporate and official mandates. It was then that companies began handing over to GPIF responsibility for managing their own and their employees’ contributions to EPI, a duty they had previously discharged themselves.
At the latest count government clients, mostly GPIF, accounted for 78,391.10bn yen of assets and corporate sponsors for just 25,150.96bn yen.
The disparity in mandate sizes was even greater with 221 government contracts worth an average 354.7bn yen and the 5,230 from companies a much lower, but still respectable, 5.25bn yen.
Fastest growing among the top 50 firms over the year were Capital International, up 184.9% on the previous term and moving from 44th or 30th place overall, Natixis Asset Management which grew 103.1% climbing from 35th to 25th rank, and Nikko Asset Management up 72.3% and gaining five places from 26th to 22nd.
Several firms that were ranked below the overall top 50 grew much faster but from very low bases with a single mandate swelling fast or being joined by a second.
Capital International is a good example of the thrills, spills and spoils of the Tokyo market.
During the year it lost two mandates from private sector retirement scheme sponsors but the value of corporate pension assets under its management still grew and it gained its first public sector business.
In May the firm took top place in actuarial consultant R&I’s ranking of firms by their capabilities in managing the core Japanese equities components of DB schemes.
For an overseas firm to win such recognition is not unusual. Though often assumed outside the country to be sought after within it simply for their capabilities in markets abroad, foreign managers handle many local mandates and were awarded first place in five of R&I’s 15 domestic categories.
They also took all but two of the top places in the 12 foreign asset classes. which have claimed wider attention as pensions funds’ search for yield has mounted and they have begun looking beyond local securities and debt issued by the US and other industrialised nations’ governments.
Domestic asset managers’ lack of expertise outside Japan means that the business goes to foreign firms who have, in turn, directed more of their marketing towards winning sub-advisory mandates from the powerful trust banks and others rather than directly from pension fund clients.
The JIAA figures show how much each firm manages but the sums are not broken down by the type of client relationship though double counting is ruled out.
With a little help from the yen
During the year under review the suppressed value of the yen saw returns on overseas investments boosted by currency translation gains – a reversal of the longstanding position under which the value of foreign investments was constantly undermined by the ever-rising domestic currency.
At Amundi the change was not enough to compensate for the loss of mandates, two of them from GPIF, which brought its count down from 55 to 51 and a steeper drop in assets from 1,251.2bn yen to 737.4bn yen.
Deutsche Asset Management (Japan) also continued to decline. A decade ago the firm sold its passive business to Northern Trust, now ranked 11th, and in the year just ended it dropped from 72nd to 102nd place with only 24.9bn yen in DB funds under management.
Deutsche Securities, a sister unit, has recently been in trouble with the Securities and Exchange Surveillance Commission for alleged lavish entertainment of officials from multi-company pension funds whose members are typically small firms within the same industry or prefecture.
KTOs Capital Partners was also implicated in the same practices – which many in the industry see as having been widespread — and in the year just closed lost 14 of its 16 mandates which pushed it from 95th to 121st in the JPID ranking.
Meanwhile Deutsche Asset Management (Japan)’s mutual fund business continues to prosper.
Arrivals and departures
The top four players still have a joint market share of over 50% but there is plenty of activity lower down the league table.
The year just ended saw seven firms leaving the field at least temporarily though in the case of Bussan Asset Management the departure is likely to be permanent. This Mitsui unit follows Toyota Asset Management from the fray, leaving only Hitachi Investment Management, ranked 27th, and Panasonic Pension Fund Management, 74th, of the quartet of firms set up to service the needs of the companies within the group which owned them.
Coming in with mandates for the first time are: Japan Asia Asset Management (previously named United Investments), Bluebay Asset Management International (UK, owned since December 2010 by Royal Bank of Canada), Eastspring Investments (Prudential, UK), GI Capital Management, Japan Alternative Investment, Ark Totan Alternative and State Street Global Markets (Japan) which is distinct from the fourth ranked State Street Global Advisors (Japan) and previously made a brief appearance in 2008/9
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