Pension Fund Association’s annual fact feast published early

The just-published results of the Pension Funds Association’s latest annual survey of its members’ investment activities provide the best possible complement to Nomura Research Institute’s yearly poll of how asset managers see the outlook for their industry which appeared just last week (see Fund managers hit highs but profits harder work from here 9 January below)

Japanese corporate retirement schemes are seriously secretive and organised data on them is scarce and sparse so the almost simultaneous appearance of two authoritative reports (which typically appear months apart) feels like a bit of a bonus.

The information in both is as of 31 March 2016, the close of the most recent financial year.

Not all pension funds are members of the Association. It currently embraces 157 Employee Pension Funds (EPFs, which are defined-benefit arrangements) , 655 Fund-type DB schemes (from a total 678) and 331 Covenant-type DB plans (from a total of 12,942). Nearly all of them responded to the survey as shown in the table above.

For more detail about fund types and other useful background please see the posting on a earlier PFA annual survey  95 trillion yen market yields up some of its secrets archive 15 June 2015.

© 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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Latest Pension Fund Association mangers’ roster published

The list of firms with mandates from the Pension Fund Association at 31 March 2016 has been published and a translated version posted under ‘The Giants’ tab.  The roster if very much the same as last year except for the absence of JP Morgan Asset Management from the domestic and foreign stocks categories and of Norinchukin Trust & Banking under ‘Other’.

© 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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Government Pension Investment Fund + Nikkei + Nomura = leak

The propaganda machine at the Government Pension Investment Fund appears to be cranking up for a busy year in which GPIF  hopes to start managing more money inhouse.

After suffering criticism for the fall in the value of its portfolio when a more aggressive allocation to equities was followed by a decline in stock markets, the Fund will be keen to show that the strategy is now paying off.

Hence a story in the Nikkei drawing attention to the ‘record’ results for the October to December quarter as estimated by Masahiro Nihikawa, chief fiscal policy analyst at Nomura Securities, which also reveals that the ‘official’ results for the period will be published by the Fund on 3 March.

© 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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Tracking the drops in monthly distribution investment trusts

More up-to-date information on the trend reported below in the declining popularity, assets and payouts of monthly distributions investment trusts can be found in the January edition of Mitsubishi Asset Brains report on the sector which is here.

© 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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Fund managers hit highs but profits harder work from here

Nomura Research Institute’s annual inquiry into the business outlook for Japan’s asset management providers is always a good read. This year it is even more so and is here.

Based on NRI’s yearly surveys of firms’ perceptions of the priorities they need to pursue, plus other non-proprietary data series and the expertise of a five-person team led by Sadayuko Horie, the new study points to several simultaneous shifts.

The customer base of all three elements of the business – pension funds, financial institutions and retail — are today in the throes of change while fast-moving developments in equities investment environments are demanding rapid and most likely perpetual adaptations in investment processes.

Yet Japan’s asset management sector has been slow, compared with those elsewhere,  to deploy the capabilities of artificial intelligence to deliver what clients needs.

Text continues beneath graph

So far it has not suffered much from this failure. It ended the most recent financial year on 31 March 2016 with both assets under management and fee income hitting all-time highs of 1,856 trillion yen and 760 billion yen. respectively.

This climb came despite foreign asset holdings falling in value when translated into yen thanks to a 6.5% rise during the term in the yen against the US dollar. The current year will most probably see a reversal of that trend, flattering results.

And then?

Pension funds have been undergoing extensive restructuring since 2002. So far this has taken little asset management business off the table but it has seen the task of awarding mandates pass into the hands of more sophisticated sponsors who are already venturing into doing more of the job themselves.

Corporate and government-managed retirement schemes together form Japan’s largest body of institutional investors with over assets of over 305tr at 31 March 2016 –  7.2% lower than 12 months earlier. The vast majority are now dependent on income from those assets to pay the bills as they have passed the tipping point at which annual benefits payments start to outweigh income from contributions.

Since 2002 corporate sponsors have

  • Closed all of the once 60,000+ Tax-Qualified Plans (TQPs) and either reconstituted them as other types of scheme or put their assets into one of the portfolios run for a series of industries by the Smaller Enterprises Retirement Allowance (SERAMA) whose component coffers thus swelled mightily to reach over 4.5tr yen. About one third of this – all in Japan government bonds — is today managed inhouse.
  • Shut all but 147 of the formerly 1,800+ companies Employee Pension Funds (EPFs), converting them to a different type by handing over to the Government Pension Investment Fund that part of their portfolios (the daiko), which they managed on behalf of the official Employee Pension Insurance scheme. GPIF thereby became the world’s largest pension fund.

Also in the government sector, the mutual aid associations (MAAs) which invest civil servants’ retirement plans, have also been restructured with their daiko components  separated out, benefits reformed and an agreement that they will follow much the same asset allocation as GPIF, once again increasing its market power.

PFA to manage more

Now the Pension Fund Association is offering today’s 14,500 corporate sponsors a low-cost pooled asset solution via a balanced portfolio that includes alternatives (infrastructure, real estate, hedge funds) and has an assumed rate of return of 2.6%. This is slightly higher than the 2.0-2.5% which corporate DB plans typically assume.

The PFA already handles a 11.5tr yen portfolio holding the assets of employees who have changed jobs and thus their employers’ schemes. While 60% of this is mandated to outside asset management firms, the Association runs inhouse the remaining 40% (which covers 60% of its domestic and 25% of its foreign bond holdings).

By aggregating assets from small funds, the new service could create pools which are large enough to be invested via specialist mandates for the first time and so increase the flow of business to asset managers.

However NRI takes a less sunny view of this development noting that it may also consolidate the management of smaller, manpower-constrained DBs’ assets in the hands of few providers. If that happens the largest impact seem likely to be on the pooled pensions businesses of life insurers and trust banks.

GPIF currently manages inhouse almost all of its passively held domestic bonds portfolio  which makes up 36% of the massive 132tr yen total. It has made its ambitions to manage more, including equities, very well known and has been staffing up to do just that while it awaits the go-ahead from the legislature.

Firms offering asset management services will accept these changes gracefully for fear of losing other business from GPIF and the PFA — both which are arms of the Ministry of Health, Labour and Welfare, the pension funds regulator.

Among financial institutions demand for asset management services comes mostly from banks and insurance companies upon whom waves of change have been thrust by dire demographics, two decades of deflation and 20 years of repeated restructuring . (For  graphics mapping the shifts see — Japan’s consolidating banking system and Japan’s shrinking life insurance sector — under Reference Points in column  at right).

And now along come negative interest rates.

City banks, regional banks and what are often dubbed “second-tier regional banks” taken together had 240tr yen in investment securities holdings at 31 March 2016, 5.5% down a a year earlier.

Declining demand for credit means that banks, like pension funds, need returns on investments to shore up their earnings bases. With Japan Government Bonds now yielding nothing, their holdings of JGBs are limited to what they need for prudential purposes and other securities — domestic and foreign equities and overseas bonds – must pick up the slack.

However the NRI survey found that, except for some major institutions, banks “lack the resources to to upgrade their portfolio management capabilities to accommodate broader diversification…. And … 90% of respondents cited upgrading/refining risk management as a priority”.

The study notes that banks expect asset management companies to support them in this  diversification drive and “to closely communicated with them after they have invested in [the firms’] products”.

Life insurers had 302tr yen in investment securities at the end of the most recent financial year, 1.1tr yen more than 12 months before. By the second half, however, they were seeing a drop in earnings income as interest rates on domestic bonds declined and interest and   dividends due from foreign holdings were eroded by the rising yen.

By suppressing the value of their holdings, the same factors have eaten into life cos’ net unrealized gains which have supported much of their increased appetite for risk in recent ears and seen them invest increasingly in overseas securities. This is a factor, says NRI, “bears monitoring”.

The largest life cos are nonetheless very big investors and are gaining confidence in going abroad by buying overseas firms. However, the locations with the best opportunities for selling insurance are not necessarily those which offer the best investment securities.

NRI suggests that “with their investment needs expanding beyond traditional asset classes, life insurers will presumably outsource asset management on a larger scale then previously, predominantly in credit, emerging markets equities and alternative  asset classes”.

In the retail segment all is calm on the surface but the undertows are becoming quite strong with the newer product-distribution channels claiming larger market shares.

Clients used to buy and sell investment trusts (called mutual funds elsewhere) solely through the securities companies which created and managed them.While this channel still dominates exchange-traded ETFs in particular are seeing increased flows.

At the March 2016 year-end the sector had 88.8tr yen of assets, down 8.3tr yen year-on-year with the bulk in public equities trusts. About 65% were bought through what NRI calls this “conventional” route. Five years ago this was 90% (see chart alongside for more)..

Some of the drop seems to be attributable to the inevitable fall in the value of so-called monthly dividend funds which used units-holders’ capital to make payments to them when income from the invested companies was insufficient. The study concludes that these vehicles “may never recover their former levels”.

Wrap (or “discretionary managed”) accounts are making slow but steady progress., Introduced 10 years ago they are sold by banks who prefer the regular fee income they provide to the one-off sales commission on mutual funds.

Units designed for defined-contribution (DC) pensions have also seen slow growth since this type of retirement scheme was introduced 15 years ago when only employers were allowed to make contributions. A May 2016 law extended eleigibility to  employees and others, offering more opportunities for expansion.

Conversely, the growth in Nippon Individual Savings Accounts, available since January 2014, is already beginning to deteriorate. NRI survey data suggest that NISA inflows will be around 3tr yen annually for the next three years but may then cease on a net basis as their tax advantages end in January 2019 when assets should be around 12tr yen with about 8tr yen in investment trusts.

The study ends by noting that: “[Asset management companies] must boldly adapt to … changes in the  environment and differentiate themselves from competitors … Whichever path they choose … they will undoubtedly have to develop new investment strategies to thrive in a competitive environment  vastly different from what they have hitherto known”.

© 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 to ignore UN, opt for sunny side up pensions accounting

According to an excellent report in today’s Financial Times “data limitations” will prevent Japan from adopting new UN national accounting rules on the acknowledgement of public pension liabilities while continuing to show the assets held against such commitments — giving a sunny-side-up picture of the national debt.

Public pensions in this context means the Government Pension Investment Fund and the various civil service pension schemes which in recent years have moved to align their asset allocation with that of GPIF which was itself revised in November 2014 following the deliberations of an expert panel.

Ijapicap has long noted that while public pensions pots produce annual “investment” reports they publish nothing on their liabilities.

The paucity of the information government is prepared to make available on GPIF’s sustainability became clear when the report of the expert asset-allocation panel produced only the chart alongside and  claimed that “the reserve asset level is to decrease for 10 years (payout is larger than contribution), which is followed by 15 years increase (payout is smaller than contribution)”  without showing any evidence for how the decade and a half of plenty is to be brought about. (See archive November 2014 Investing pensions: Plus ça change, plus c’est la même chose.)

© 2016 Japan Pensions Industry Database/Jo McBride. Reporting on, and analysis of, the secretive business of Japanese institutional investment takes commitment, 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.

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

 

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Public pensions mandates in issue hit all-time highs

The number of mandates from Japanese public pension funds held by Tokyo asset managers rose by 18 (or 3.7%) in the second quarter of the financial year, which ended on 30 September 2016, to hit over 500 for the first time.

Business from Japanese corporate retirement schemes fell by just three (or 0.8%) in the term to reach 4,200 but the amount they represent rose 0.8% to 24,174.8 billion yen. The amount under government mandates climbed 3.4% to 91,447.5bn yen, also a record.

The numbers come from returns which members of the Japan Investment Advisors’ Association submit to it.  This time around they include ‘other’ corporate business which comes in at 42,109.7bn yen under a hefty 965 mandates.

To some extent the growth in externally managed public pension assets and the decline in private pension mandates has the same cause.

Companies with the type of pension plan which obliged them to also manage their worker’ contributions to the government’s Employee Pension Insurance scheme can now opt out of that arrangement and hand over the assets to the Government Pension Investment Fund. At the end of last month there were still 147 of these still to make the move – down from almost 2,000 in 2002.

Overseas clients seem to have been changing their view of the potential for Japanese markets  during the second quarter. In previous the three months mandates in issue had dropped from the year-ago record of 1,142 to just 976 but by the end of September they had climbed back some way to reach 1,007.

At 28,513.bn yen, the assets these cross-border contracts represent are 11.6% up on the previous quarter but have some way to go before they reclaim the record level of 32,436.1bn yen seen in March 2015.

The JIAA’s numbers are not broken down by investor domicile or type but it can be assumed that manadates awared to Tokyo fund managers by foreign clients are for investment in Japanese securities.

Many  of the shifts in in managers’ portfolios can be accounted for by ups and downs in securities and foreign exchange markets and are not expecially pronouced.

At the end of September Japanese equities made up 26.3% of the total of 186,263.4bn yen. This compares with 25.4% at the close of the prior quarter and 24.9% 12 months previously.

Japanese bonds accounted for 24.4% (compared with 24.4% and 21.18%), US equties for 9.7% (unchanged and 9.1%) US bonds, 10.8% (11.2% and 11.0%). European stocks for 4.3% (unchanged  and 4.4%), European bonds 6.7% (6.9% and 7.1%), Asian equities 1.6% (unchanged and unchanged) , Asian bonds 0.5% (also unchanged) , equities from other nations 2.7% (2.8% and 2.8%) and other national bonds 5.6% (5.7% and 6.2%).

The rest is made up of bonds from other nations  nd real estate-related securities from around he world.

© 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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Foreign assets heading for 30% of life companies’ portfolios

Foreign securities held by member firms of the Life Insurance Association of Japan (LIAJ) accounted for 21.7% of their combined 360,196 billion yen of investment assets at end of the first half of the financial year on 30 September –despite a yen which was then once again strengthening .

Overseas holdings have now stood at over 20% of the aggregate investments  for 12 months, returning to the levels they last saw in 2005.

Four years later the giant Japan Post Insurance joined the trade body and since it had next to nothing in foreign securities the percentage of members’ portfolios for which they account plummeted to 12.7%.

Now even Post Insurance has joined the trend with 5.8% of its 80,492.2bn yen portfolio in overseas investments.

When Post Insurance is taken out of the group picture the remaining members have assets of 279,704bn yen of which a hefty 27.14% is in foreign securities.

The trend to life insurers investing overseas was initially driven by quest for better yields than those available in Japan’s near-stagnant economy. Post-Trump, it looks set to continue with an added boost from a weakening yen ensuring that the value of holdings rises when translated back into local currency.

© 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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Government Pension Investment Fund regains ground in Q2

The local and foreign stock markets whose performance eroded the Government Pension Investment Fund’s assets in the first quarter of the 2016/17 financial year did much to restore its fortunes in the second quarter ending on 30 September.

The only significant shift in the portfolio during the term was the reduction in domestic bonds and the concomitant rise in short-term holdings. As the Fund holds a substantial part of its yen fixed-income investments to maturity, the fall is most likely to have come from maturing paper being redeemed and held in cash or near-cash awaiting allocation.

 

 

 

 

© 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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Annual ranking shows extent of pension funds’ lacklustre year

Finance and pharmaceutical companies dominate the top 20 defined-benefit Japanese pension funds measured by assets, according to the latest annual ranking from Nenkin Joho using information provided in funds’ returned questionnairesnj-2016-dbs-ranking.

Based on 31 March 2016 numbers, the league table covers over 300 entities and the ‘returns’ column is characterized throughout by minus signs.

Nenkin Joho is the fortnightly newsletter from Rating & information, the actuarial consulting subsidary of the Nikkei group which includes the newspaper and indices of the same name.

As the group is self-selecting, and there are over 13,000 DB schemes, the lacklustre performance cannot be said to represent the entire sector — but that nonetheless seems likely.

This makes the 24.33% return enjoyed by Tokio Marine Nichido, part of Tokio Marine Holdings Japan’s largest non-mutual property/casualty insurer, stand out all the more.. The only other positive result in double figures is from 236th ranked Sekisui Plastics whose fund grew by 10.46% during the term to close with 4,215 million yen.

Last year Tokio Marine Nichido ranked ninth among the DBs with assets of 202,746mn yen. (For the top 20 at 31 March 2015 see under the ‘Rankings’ tab above.)

At about a quarter of the DBs with losses, the decline was under 1% and anything over 3% is relatively rare. Sakai Trading bucked the trend with the highest loss at a negative 8.96% but that follows the previous annual term’s positive 19.52%. nj-2016-epfs-ranking

In separate ranking of corporate retirement schemes of the ‘Employee Pension Fund’ type (which are also defined-benefit) the top slot was taken by Osaka Pharmaceutical, a multi-company arrangement covering firms in the sector, with assets of  326,269mn yen.

There were once over 2,000 EPFs but they are being phased out and only 333 remained at 31 March this year. Of those just 48 responded to Nenkin Joho’s questionnaire.

© 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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