Imminence of institutional infrastructure investment over-stated

Japanese investors are ‘primed to play a key funding role for global infrastructure and real estate’ according to a new report from AMP Capital, the fund management subsidiary of giant Sydney-based pensions provider AMP Ltd.

AMP Capital has over A$165 billion in its stewardship and acknowledged expertise in physical assets investment.

In support of its conclusion the publication points to patterns in Japan’s demographics, investment yields and institutional money under external management.

These well known trends do indeed indicate the logic of institutions investing in income-producing assets but do not in themselves demonstrate that institutions are any more ‘primed’ to do so now than they have been in the past several years.

Not as near as it looks

The only factor to have changed significantly in that time is the rise in assets under management from non-pensions sources which shows up in Japan Investment Advisors’ Association statistics as money from ‘other’ customers (see archive Asset management rides high on market gains and new money 23 March 2017).

As ‘others’ are reliably said to be mostly small regional banks needing to park money during a period of very low loan demand, it is unlikely that the cash is destined for investment in illiquid infrastructure or real estate assets.

The huge ‘government’ pensions category in the JIAA numbers is dominated by the Government Pension Investment Fund, the world’s largest institutional investor, which has made clear its interest investing in property and infrastructure — but via segregated funds of funds managed solely for it (see archive GPIF tiptoes towards PE, infrastructure and real estate 12 April 2017.)

Many corporate pensions will readily acknowledge the logic of committing money to revenue-earning assets and have been lamenting for several years that they do not have the expertise to judge such projects.

Supporting pensions decision-making

GPIF is often seen as leading the way for other retirement schemes to follow but its allocation to all types of ‘alternatives’ is limited to 5% of its portfolio and corporate funds would be cautious about committing any more – even to funds of funds — of their very much smaller pots while that ceiling remains in place.

Company pensions are only very rarely staffed by investment professionals or even by staff who stay in the job for very long since, like all other corporate personnel, they are subject to Japan’s job rotation system* which sees them moved to different work every three years or so.

Persuading these employees to commit the pension contributions of their employers and fellow workers to anything new will need and a large and imaginative educational effort.

That in turn will be complicated by the complete absence of any Japanese-language  institutional investment media other than a highly technical fortnightly newsletter published by an actuarial consultant and costing over US$1,000 a year.

In theory life cos are better placed to invest in real assets but in practice the only recent change in the composition of their portfolios has been in the swelling ‘foreign securities’ component (see archive Life cos (minus Post Insurance) now have 30% of their money abroad 20 March 2017).

Japan Post Bank, and to a lesser extent Japan Post Insurance, has talked so much about expanding its massive holdings into ‘alternatives’ that when action finally comes it will look like very old news.

Meanwhile the behemoth city banks keep income-earning assets such as aircraft leases on their own balance sheets since they too have to find alternative means of investing  given the absence of growth in loan demand. Only occasionally does something investible come loose from this pack (see archive Banks let investors in on aircraft leasing act at last 11 July 2016).

Similarly Japan’s trading companies – Mitsubishi, Mitsui, Sumitomo, Marubeni, Itochu, etc — own as part of their business logistics facilities around the world which, were they ever short of money, they could package for sale to pension funds and then lease back.

The same is true of the property firms which own much of central Tokyo.

The snag is that none of them is sort of money.

However, they are sometimes short of imagination and that lack allowed enterprising foreign firms to spot the unmet demand for warehousing facilities as Japanese distribution patterns changed and to make a significant success of packaging projects which build and/or invest and selling them on to institutional investors.

* For examples of how job rotation works ttp://www.nytimes.com/1982/07/12/business/how-job-rotation-works-for-japanese.html and http://www.nytimes.com/1982/07/12/business/how-job-rotation-works-for-japanese.html and http://www.japanintercultural.com/en/news/default.aspx?newsid=194. Both are now some years old but very little has changed.

© 2017 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 tiptoes towards PE, infrastructure and real estate

The first alternative assets to be included in the Government Pensions Investment Fund’s portfolio will be structured as fund of funds and designed and managed separately for it alone. Those investing mainly in listed funds will be excluded from consideration.

Asset management firms with appropriate capabilities now being invited to register their interest with GPIF for a review process which will begin on 1 June.

The first four fund types sought are those investing internationally in private equity, infrastructure and real estate plus those focused on real estate in Japan. The preference among the last three is for those aimed at generating stable income.

Firms who wish to attend a 17 April orientation meeting about the process should register by emailing setsumei_alts_ff@gpif.go.jp by 10 a.m. on 14 April with the name of the company and the attendees.

Managers who are not authorised to do business in (and are thus not regulated by) Japan must apply jointly with a local partner firm.

GPIF is also not closing the door on asset managers which do not meet its criteria but says they must supply detailed information such as performance data.

The first four areas of interest are as follows (note that the ‘global’ requirement can include products investing in specific geographical regions) ;

Private equity – diversified global funds pursuing various strategies.

Infrastructure – global funds investing chiefly in developed countries, including brownfield projects and focused mainly on generating stable income.

Real estate – global funds investing mainly in developed countries and focused mainly on generating stable income.

Real estate – diversified domestic vehicles focused mainly on generating stable income.

© 2017 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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Business up and a new name for personnel from the Pru

Prudential Investment Management Japan Co Ltd will change it name to PGIM Japan Co Ltd (PGIMジャパン株式会社) from 1 October, in line with the worldwide rebranding which its New Jersey-based parent embarked on in January 2016.

Before then PGIM entities operating in jurisdictions where the British Prudential plc, founded in 1848, also had a presence used the name Pramerica to avoid confusion. However as the American company, founded in 1875, expanded around the world it became necessary to make a clear distinction between the two.

Prudential Investment Management Japan, which is known mostly as a yen bond house, will be putting under the new name a business which built slowly at first but with its foundations in place grew at considerable speed under its long-term president and CEO Yasuhisa Nitta (below).

In 1999 the firm had a mutual fund business with 15 billion yen of assets, the Japan Pensions Industry Database shows. A year later it it was  investing another 1.0bn for defined-benefit corporate pensions.

By the 2013 financial year the mutual fund business had grown to 86.4bn yen but that was a record never seen again as by 2016 the number was a lowly 18.4bn yen.

Meanwhile the pension business took a few knocks too. In the 2012 financial year  it was handling just 15.7bn yen in DB retirement schemes compared with 33.4bn yen in 2007. But in the next year the number jumped to 435.5bn yen and by 2016 it was 984.1bn yen.

As the calendar year came to a close the firm was running 1,189.6bn under nine mandates from public sector funds and 13.9bn yen under three mandates from corporate sponsors.

Yet PGIM’s real success, figures submitted to the Japan Investment Advisors Association show, has come from winning ‘other’ customers from whom on 30 December it held 92 mandates worth 15,169.3bn yen — vastly outweighing its pensions and mutual fund businesses.

The distribution of what JIAA members report to the Association under the non-specific category is not known but it is widely believed to be money from regional banks and other financial  institutions as they have abundant deposits but no loan demand and must put their customers’ money to use if they are to pay even meagre levels of interest.

© 2017 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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Manulife’s Nagata retires, baton passes to Pimco’s Yamamoto

Shinichi Yamamoto has become president and chief executive officer of Manulife Asset Management (Japan) Ltd, taking over from Yoshihide Nagata who retired at the end of last month after several years in the post.

And what a few years it was.

Manulife is known in Asia more for its retail than its institutional business but it made brave start in the 2008/09 financial term by getting 3.0 billion yen in segregated corporate pension assets under its management, the Japan Pensions Industry Database shows.

For the four years after that number barely budged but by the 2012/13 term the firm had moved into retail and sold 3.2bn yen in investment trusts (as mutual funds are called in Japan). This quickly moved into double figures and at the end of last year on 31 March 2016 the business was worth 69.8bn yen (down from 79.9bn yen 12 months previously) while privately placed funds, which are often for institutional customers, were more than double at 184.9bn yen.

This pales besides the Manulife’s strides in the institutional market when in 2012/2013,, while still a relative newcomer, it was awarded by the giant Government Pension Investment Fund a whopping 400bn yen mandate to actively manage domestic bonds . In 2015/16 its performance on this trove was below the benchmark but only by o.02% and its reputation has gained strongly enough for it to be managing 1,234bn yen for public retirement schemes by 31 December last year, though it still had only 12.7bn yen from corporate funds.

The firm has also done well in non-pensions institutional business, with Japan Investment Advisors Association figures showing it now manages 1,195.1bn yen for customers which are thought to be mostly financial institutions – particularly regional banks.

New boss Shinichi Yamamoto joins from Pimco Japan Ltd where he was president for three years after joining the firm from Goldman Sachs in 2002 to head up the retail business.

© 2017 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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SMBC sets up €3 billion debt fund with Park Square Capital

Financial institutions are becoming asset management’s most interesting segment (see archive 2017-3-27 Asset management rides high on market gains anew money) and foreign loans are the investment increasingly attracting their attention. They are both setting up and investing in funds which lend directly to borrowers or buy existing facilities in the secondary market.

This makes sense since banks already know to do credit analysis but have little need to use their skills in Japan where demand is low and customers and their lenders know each other well through ties that have endured for decades.

Pension funds abroad are being are also attracted by the asset class which they see as protecting them some of the volatility they expect to see as a result of geo-political and societal risks.

Sumitomo Mitsui Banking Corp missed out on acquiring GE Capital’s Ares Management when it bought the firm’s European Sponsor Finance business in 2015 and has been looking since then to create a similar entity.

Last month it set up with the London-headquartered Park Square Capital a joint venture vehicle, for which fund raising of €3 billion is expected to close shortly, that will provide unitranche loans to European middle-market companies.

The venture will be headed by Howard Sharp, Park Square’s head of mid-market direct lending and Owen Verrier-Jones, SMBC’s head of sponsor coverage and origination, who both joined their respective firms from GE Capital in 2015.

Park Square was founded in 2004 by former Goldman Sachs executives and is backed by Ontario Teacher’s Pension Plan and the Caisse des Dépots et Placement du Quebec.

© 2017 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 CIO Hiromichi Mizuno rides half a year onwards

Hiromachi Mizuno, CIO of the Government Pension Investment Fund since he joined from London private equity firm Coller Capital in November last year on a two-year contract, has had his term extended by six months according to an announcement on GPIF’s web site.  No explanation was offered for so short a tenure but US magazine Pensions & Investments reports that it is ‘in line with a law which passed Japan’s parliament late last year to reform GPIF’s governance structure.’

© 2017 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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Back to black for 100+ big corporate pension funds

‘Around 100’ of Japan’s ‘major’ corporate pension funds enjoyed returns of 3.5% in the year ending 31 March, according to actuarial consultants Rating and Investment Information, a subsidiary of the Nikkei newspaper which reported the results. The funds reviewed had assets totaling 9 trillion yen and were most probably R&I clients.

This performance is the first positive outcome in two years and compares with a loss of 0.7% last time. The number was calculated by using actual figures for the first 11 months of the year then adding estimates for March based on the funds’ asset allocation. It is significantly higher than the 2% which had earlier been expected.

With the Nikkei Stock Average rising 13% during the term and Dow Jones Industrial Index by 17%, yields on both domestic and foreign stock were positive even though a rising yen ate into the overseas gains.

The currency effect also diminished the value of overseas bond holdings and prices for local debt paper declined in line with the Bank of Japan’s monetary easing policies.

The Nikkei report notes that a survey by Willis Towers Watson, another actuarial firm and an R&I competitor in Japan, which covered 120 pension funds, also put their gain for year at 3.5% but pegged last year’s outturn at -0.6%.

© 2017 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, 19

 

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Asset management rides high on market gains and new money

Money managed under discretionary mandates by member firms of the Japan Investment Advisors’ Association hit a record 213,797.7 billion yen at the end of December, just- released figures show.

While rising local and US stock markets and a fall in the value of the yen contributed to the overall 14.8% gain during the third quarter, new money also played a part; the number of mandates from non-pensions domestic clients rose by 28.2% to 1,237 during the third quarter and the assets they represent climbed 31.3% to 55,276.9bn yen.

Six years ago these ‘other’ clients – which are thought to consist predominantly of regional banks — had assets in JIAA members’ stewardship of about 23,352.2bn yen, roughly equal with that of local corporate pension funds.

Today they have almost twice as much as companies’ retirement schemes’ 252,920bn yen.

The recent inflows may also be responsible for the only major change during the term in asset allocations  with domestic equities rising from 26.3% to 27.9% of portfolios while domestic bonds showed an even more significant move – dropping from 24.2% to 22.4%.

The expanding business from regional banks arises from the very low loan demand experienced by these institutions which need somewhere to put their money. To generate revenue many have also become distributors of mutual funds run by firms that are members of another trade body, the Japan Investment Trusts Association.

And some may be in trouble.

The Nikkei reported on 9 March that the Financial Services Agency is launching audits of some regionals whose inhouse asset management units are thought to have lost money though large exposures to US treasuries yields on which rose, and prices fell, sharply in November.

© 2017 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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Pension Fund Association takes aim at cross-shareholdings

Corporate cross-shareholdings are distorting the stock market and frustrating better company management, Pension Fund Association CIO Daisuke Hamaguchi (pictured left)  told Asian Investor during the magazine’s annual Institutional Investor Forum.

His remarks are a strong echo of those made to the Nikkei in 2014 by then newly appointed Minster of Health, Labour & Welfare Yasuhisa Shiozaki (see archive 5 September 2014 Will Shiozaki use GPIF’s clout to see off cross shareholdings?).

Like Mr Shiozaki (right), Mr Hamaguchi pointed to the German experience in successfully bringing an end the same situation.

In the two and half years since the Minster’s remarks, the tangentially related problem of large government-linked investors dominating the market has also intensified.

The Bank of Japan has increased it shareholdings under its quantative easing program while the Government Pension Investment Fund and the Post Office institutions have done the same in bids to offset the impact on their portfolios of the BoJ’s actions in the bond market which have caused yields there to drop to zero.

A Corporate Governance Code and a Stewardship Code have been introduced since Mr Shiozaki’s appointment but Mr Hamaguchi told Asia Investor that when very large stakes in companies are owned as part of cross-holding understandings their managements can simply ignore the views of their more active investors.

The Pension Fund Association’s chief role if to manage the currently around 11.8 trillion yen owned as part of their previous employment by staff who have changed jobs.

Despite its name, the PFA is an arm of the Ministry of Health which also has ultimate oversight of the Government Pension Investment Fund.

GPIF has been very vocal on how it expects assets managers to work with the directors of under-performing companies and has made plain that it will not award its own massive mandates to those which do not comply.

Mr Hamaguchi notes that the current Corporate Governance Code requirement that companies simply state why they have cross-holdings produces the answer that it is to maintain ‘transactional relationships’ and nothing else.

His solution is to exempt sales of such stakes from capital gains tax but with so many Japanese companies and especially its banks – where cross-holdings are substantial – having surplus cash it is doubtful that this would prove to be enough of an incentive.

© 2017 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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Life cos (-Post Insurance) now have 30% of their money abroad

The proportion of Japanese life cos’ portfolios invested in foreign securities is continuing its steady rise, according to figures just published by Life Insurance Association of Japan.

At the close of the third quarter on 31 December the level had reached 22.9% thanks in part to a fall during the term of 15% in value of the yen against the US dollar which flattered assets held in that currency when converted to the Japanese unit.

The trend has been forecast for so long (see archive 9 April 2013 for one of the earliest predictions) that the new numbers will surprise to no one — except those who had been forecasting a steeper climb.

And a steeper rise can indeed be discerned. If the numbers for Japan Post Insurance, the biggest entity in the business and a super-conservative investor, are deducted from the LIAJ members’ total the proportion of assets in foreign investments is over 30%.

                Note that the percentages in the table below are on a slightly different basis (% of securities and loans investment) from those in the table above  (where the are % of all investments).

Evidence that this is not purely theoretical come from Nippon Life’s recently reported results for the same quarter which show its overseas holdings to be 32.8% of its portfolio.

Also notable is the almost 15% of Nippon Life held in domestic stocks. This compares with  compared to for 7.72% LIAJ members without Post Insurance and just 1.9% for the postal giant.                                                                                                 It is not hard to see why the Nikkei likes to quote sources who dub the Postal Insurance the ‘blue whale’ for the colour of its logo and its ability to provide huge buoyancy to the stock market were it to start   increasing the proportion of its portfolio held in local equities to the same level as other LIAJ members.

As continuing low interest rates and expectations of market volatility continue to challenge insurance firms and other institutional investors, they are looking increasingly to boost returns by acquiring assets such as loans.

In February Reuters reported that Nippon Life had made it first overseas move in this direction by buying a US$100 million 10-year project finance facility which Bank of Tokyo-Mitsubishi UFJ had extended to an LNG project in the US.

A month before Ryusuke Sakakibara, deputy general manager at Nippon  Life’s corporate finance structuring office, said the company was also looking for opportunities to make overseas project finance loans in the primary market.

© 2017 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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