GPIF behemoth seeks to harness the power of consultation

The Government Pension Investment Fund is embarking on two consultation initiatives designed to strengthen the part GPIF plays in the investment chain and, through interactions with other players, help set the Japanese economy on a path to sustainable growth.

The twin moves are announced in a statement which is notable for its English-language version including the term ‘fiduciary duty’, a concept fundamental to investment regimes elsewhere but of which Japan still lacks a legal definition.

Text continues below illustration

GPIF two new fora

A new Business and Asset Owner’s Forum is the result of the Fund receiving a proposal from ‘many’ companies, including Omron Corp, Eisai Co and Nissan Motor Corporation, to meet regularly with it ‘as an asset owner’ (and presumably one which holds their shares).  The first such gathering will be in September and about ten companies are expected to attend. As the Fund appears to be the only owner involved the group it might be better named the Business and GPIF Forum.

The Global Asset Owners’ Forum to be set up later this year will consist of around 20 asset owners including:

From North America CalSTRS, CalPERS, State Board of Administration of Florida, State of Wisconsin Investment Board, The Regents of the University of California and the Ontario Teachers’ Pension Plan.

From Europe the UK’s Universities Superannuation Scheme and Legal & General Investment Management and from the Netherlands PGGM and APG.

GPIF notes that these players have already developed sophisticated approaches to ESG investing [in which environmental, social and governance considerations are systematically included in stock selection] and hopes to utilize their expertise in that regard in developing discussions with its own fund managers and non-Japanese asset owners.

© 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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Municipalities get 6 managers for active equities, 2 for passive

The National Federation of Mutual Aid Associations for Municipal Personnel, often known as Shichousonren, has announced the selection of the following firms to manage its active domestic equities portfolio for which the benchmark is the TOPIX index (including dividends).

Capital International KK (subcontracted to Capital International Inc), Nikko Asset Management, Nomura Asset Management, Mizuho Trust & Banking, Sumitomo Mitsui Asset Management and Sumitomo Mitsui Trust Bank.

The award to Sumitomo Mitsui Trust Bank includes an unknown amount for which no benchmark is stated as does an award to Nissay Asset Management.

Mandates for passive equities management have gone to Mitsubishi UFJ Trust and Banking, for which the benchmark is the MSCI Japan Minimum Volatility Index (dividends included), and Resona Bank for which the yardstick is the FT RAFI Japan 350 QSR (dividends included).

The values of the mandates have been made known.

Only Sumitomo Mitsui Asset Management is new to Shichousonren’s manager roster.

© 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 to publish list of equities held a year ago as ‘first step’

According to an article in the Yomiuri Shimbun when the Government Pension Investment Fund publishes it annual report for the year to 31 March 2016 on Friday of this week it will also make available a full list of its stock holdings a year earlier. This ‘first step’ will be followed by publication of the list of equities held at 31 Mach 2016 before the end of this year.

© 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. The material published  here 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.

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2016 top 25 pensions managers: assets up, mandates down

Japanese defined-benefit pension assets under discretionary management at the country’s local and foreign fund firms stood at 118,611 billion yen [then US$1,055.26bn) at the year end on 31 March, 2.4% up on 12 months previously, while the number of mandates under which the business is done was down by 1.3% to 4,710.

JIAA top 25 by totla sssetsThe figures come from an analysis of data which members of the Japan Investment Advisers Association submit to it and so exclude sums which pension funds manage inhouse or are handled by non-JIAA members (for these and other exclusions see at the foot of the first table).

Firms with public-sector customers – which pay wafer-thin fees but include the Government Pension Investment Fund, the world’s largest institutional investor – continue to have the largest market shares though there is a more equitable spread among those serving corporate retirement schemes.

The loss of a GPIF mandate can cause a firm to fall dramatically in pensions manager rankings. Thus the 2015/16 year saw Northern Trust tumbling from 11th to 57th when it could no longer include a 2,000 billion yen passively managed international bonds mandate from the Fund.

When a foreign firm slips in this way it is hard to know whether the drop is an accident of timing, with renewal of a mandate simply spanning the year-end cut-off, whether it has decided to devote resources to different businesses or different parts of the world, or some other cause. The year also saw Northern Trust’s count of private sector mandates continuing its fall to hit four compared with 10 three years ago to five last time.

By contrast BNY Mellon saw its business grow by 128.7% and a Top 5 by growth in pen AUM JIAA 2016consequent move up the overall rankings from 36th to 20th even though it had three fewer mandates overall than last year but four more public-sector funds of which it now holds six.

Similarly Prudential Investment Management rose from 35th to 23rd by winning five new public sector mandates bringing its total to seven  but still has only one corporate customer.

Beyond these three firms there was very little change on the top 25 except that BlackRock Japan and Mizuho Trust & Banking swapped places and further down a trio of newcomers made their debut: Macquarie Asset Management Japan at 99, Towers Watson Investment Services at 104 and Fivestar Asset Management at 109.

The overall ranking, like the leaders, is close to evenly split between local and foreign-headquartered firms.

Top 6 by govt pen AUM JIAA 2016In addition to GPIF the public-sector includes the massive local and national civil service pension schemes plus the Pension Fund Association which manages the assets, which would otherwise be orphaned, of company employees who have left jobs.

The total public pensions pot consisted of a hefty 481 mandates covering 93,830.4bn yen of assets at 31 March, compared with 260 and assets of 87,797.61bn last time. At the same time the private sector had 4,226 mandates covering 24,780.5bn yen, against 4,497 and 28,064.2bn yen last time.

The fall in corporate pensions values and mandates, the third in three years, is concerning Top 5 by corp pens AUM JIAA 2916but these assets are not necessarily lost to the market. Rather, the drop may simply mark a move into public sector hands of the assets of a supplementary government scheme, known as the daiko, which was once managed by companies but responsibility for which some are still in the process of handing over to GPIF.

The market share of the top ten firms on the government-related side of the market is over 83% while the top 10 on the company side have just over 50%.

The most noticeable trend to emerge in analysing this year’s figures has been what is not there. For the first time in 20 years the absence of asset manager mergers in the previous 12 months meant there was  no need to combine the historical numbers for two or more firms so that they are comparable with those of the new single entity.

In the 1990s this trend was most marked among foreign firms as when, for example, the Brinson component of the Yasuda Kasai Brinson joint venture was acquired by Swiss Bank Corp and made part of a new new j.v. with what was then LTCB.

That was in 1997, the year in which the failure of Chuo Trust & Banking and Nissan Life began the slides which brought Japan’s banking and insurance sectors to the brink of collapse.

Government bail-outs followed and both industries began two decades of repeated consolidations of their asset management and other operations which proved so preoccupying that foreign firms bagged most of the business resulting from a radical pensions deregulation 1995.

Local firms have since found the skill sets and stabiTowwers Watson top DB nationslity needed but there is little to indicate whether the new equilibrium will hold or is simply a stopping off point on the route to outcomes as yet unknown.

Japan is home to the world’s second largest pool of defined-benefit assets – behind the much larger US and ahead of the UK.

For further information on analyses of the data on which this post is based please use the ‘contact’ tab above. The data cover 130+ fund management firms over several years and include rankings by growth rates and average mandate size among other points. 

© 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 goes ESG for part of its domestic equities portfolio

The Government Pension Investment Fund is planning to run a portion of its domestic equities portfolio on an ESG basis — in which stocks’ environmental, social and governance qualities form part of the selection process — and is seeking bids from experienced providers of a range of index-composition and other services to help in this task  The contact is chosa@gpif.go.jp.

© 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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Golden moment for debt markets innovation + GPIF leadership

With the Diet Upper House election out of the way, two developments are now expected by 29 July: publication of the Government Pension Investment Fund’s annual investment review and the announcement of an economic stimulus package.

Will the two prove to be connected ?

The first was deliberately moved away from its usual publication date at the beginning of the month while the second will probably come after the close of a regular two-day Bank of Japan policy meeting.

GPIF should be able to report for the first time in its 15-year history that it is free of paying for previous government stimulus packages — then dubbed ‘pump-priming’ — which consisted of pouring concrete on roads, river banks, sea walls and much more.

The end of this burden will allow the Fund to look afresh at the possibilities in the infrastructure finance market while taking into account its own investment horizons and needs.GPIF total assets 2002-2014

The ‘pump-priming’ works of the past were well-liked by construction companies which thus came to like the long-ruling Liberal Democratic Party that commissioned them and to support it with their donations.

Also among the fans were the firms made up of retired bureaucrats which often ran the commissioning processes.

Motorists were not so keen as they had to pay high tolls to use the new expressways and bridges which they tried whenever possible to avoid by taking longer routes.

The projects were paid for out of the Fiscal Investment and Loan Program (FILP) whose funds came via the Ministry of Finance’s Trust Fund Bureau. It requisitioned them from Nenpuku, GPIF’s forerunner, which invested that part of the citizenry’s contributions to the national pension not immediately used to pay benefits. This debt was acknowledged through the issue of paper known as zaito bonds.

What could possibly go wrong?

By the early 1990s it was becoming clear that Japan’s falling birthrate had come to stay and that the national pension system would become unsustainable — especially since it was getting so little return on its investments.

The same problems were impacting corporate retirement schemes on which government imposed asset allocation guidelines designed to drive money into government debt.

Moreover, since the Japanese stock market fell off a cliff in 1990, company sponsors had been facing a double whammy as many had taken on the additional responsibility of investing yet another component of the system: the daiko, or ‘substitutional’ element (so-called because it substitutes for a benefits what would otherwise be paid for by government). Such firms received tax concessions but had to achieve an 8% return on their investments. This requirement was very easy to meet in the Japan of the 1980s but after that no longer so.

Things had to change and they did.

From the mid-1990s companies started being allowed to put their retirement schemes into the hands of fund management firms — not just the trust banks and life insurance companies to which they has previously been restricted — and the asset allocations guidelines were steadily shriveled away

From the early 2000s firms were permitted to hand over management of their daiko components to government in the shape of Nenpuku which was reconstituted as GPIF.

GPIF agreed with government that it would show zaito bonds on its balance sheet at book value, even after market-pricing became the norm, and government agreed with GPIF that as these bonds matured the redeemed proceeds could be applied to other types of investment. (In the event the paper was shown at both book and market values.)

And so it came to pass that the annual report due for publication on 29 July is very likely to announce that GPIF no longer holds any FILP paper or that such a position will be reached within the current financial year.

This comes at a confluence of interesting trends.

  • The stock market is going nowhere;
  • According to the Japan Centre for Economic Research, the Bank of Japan will by June next year run out of government bonds to buy, thus pausing a major part of its current stimulus programme.
  • The country’s decaying infrastructure now really is in need of well-managed investment;
  • Government and quasi-government paper aside, the bond market remains under developed with a tiny number of issues;
  • The yen is once again on a rising track which cuts the value of foreign holdings when they are converted back into the Japanese currency;
  • Banks are so short of lending opportunities that their securities portfolios are now equivalent to almost half their loan books;
  • After decades of deflation the government is said to be thinking of spurring the economy by bringing in so-called helicopter money (under which it directly pays for projects designed to prime the pump) even though it is already very deeply in the red.

This environment provides abundant opportunities for innovation in debt markets and considered institutional leadership.

A new market place could start with something as simple as bonds backed by the revenue from the infrastructure they are funding and move on from there to the numerous other financial vehicles and their variations for which models are already available.

A possible drawback is the length of time that institutions would need to consider the extent to which such paper could be accommodated in their portfolios. But GPIF would simply be replacing one kind of infrastructure investment (FILP) with another which can anyway be sold on to the Bank of Japan as and when times dictate.

Company pension schemes have a history of following GPIF’s lead and if the Fund were to hold on to at least some of it new investments, corporate plans as well as insurance companies would almost certainly follow suit — once they have fully understood the role of such paper in their portfolios.

An once they have come to that understanding they will probably be able to make room for much more.

© 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 at limited partnerships for infrastructure investment

“The legal framework regulating GPIF’s investments might be changed to allow greater flexibility in managing the fund. Alternative asset investments are currently organised on a unit trust basis, but the government is discussing possible regulatory amendments to GPIF’s existing framework to include limited partnerships. As GPIF moves further into alternative investments, we are striving to enhance our risk management and other control measures, and continue to build up a dedicated team of experienced personnel.”

GPIF president Norihiro Takahashi in Global Public Investor

Anyone who thought Norihiro Takahashi’s presidency of the 144 trillion yen Government Pension Investment Fund, the world’s largest institutional investor, likely to be boring will need to think again after reading his contribution to Global Public Investor, the journal of  independent think tank the Official Monetary and Financial Institutions Forum (OMFIF).

For the head of GPIF to author an article with something substantial to say on its investment policies is a breakthrough in itself but Mr Takahashi takes transpaency much further.

Before his remarks on the possible use of limited partnerships as vehicle for infrastructure investment he notes that after some ‘co-investment in infrastructure in 2014, undertaken with like-minded, experienced institutional investors, GPIF also implemented a new policy on alternative investment under the policy asset mix that allows infrastructure, private equity, real estate and ‘others’ … to be included, up to a maximum of 5% of the fund’s total portfolio.”

On the Fund’s relationship with public investment markets and companies he notes that “GPIF … has to take into account the results of its investment actions on financial markets and private sector company management. GPIF should not distort investment behaviour in the private sector and should be aware of the timing of investment and divestment decisions….

“GPIF is required not to exert undue influence on company management, at the same time as it needs to be mindful of maximising investment returns from a long-term perspective, including through responsible exercising of voting rights.”

These comments should (but probably will not) give pause to the brokers who have repeatedly used assertions about GPIF’s likely next moves to talk up the market.

They also raise the question of what is “undue influence on company management” in an era when the Fund seems to have been pursuing an aggressive interpretation of government’s corporate ‘stewardship’ code.

To see Mr Takahashi’ article, which is in English,  click this link  グローバル・パブリック・インベスター2016誌に掲載されました, when the page opens click the link at its foot.

© 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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Chikyoren appoints JPMorgan & UBS for foreign property push

The National Pension Fund Association for Local Government Officials, usually known as Chikyoren, has given more heft to its push into real assets with the award of a foreign property mandate to UBS Asset Management and an overseas infrastructure mandate to JP Morgan Asset Management.

For details of Chikyoren’s asset allocation at 31 December 2015 (the latest figures available) and its award of a real estate mandate to Nomura Asset Management please see Step towards property continues Chikyoren’s slo-mo overhaul archive 16 June 2016.

Further data are given under ‘The Giants’ tab at the top of this page.

© 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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Banks let investors in on aircraft leasing act – at last

sumitomo-mitsui-trust-bank-squarelogo-1422988343146Sumitomo Mitsui Trust Bank and Novus Aviation Capital are offering Japanese institutional investors participation in a US$200 million fund from their jointly owned Ortus Aircraft Leasing subsidiary.

The move is a significant development in a field where Japan’s giant banking groups have been a substantial presence for several years but have kept the investments on their own books, providing healthy income. The big players in the sector include Mitsubishi UFJ Financial Group and Sumitomo Mitsui Financial Group Inc which is unrelated to Sumitomo Mitsui Trust Holdings and its  Sumitomo Mitsui Trust Bank component.

The announcement of the fund notes that:

“The aircraft finance … is a huge market which provides funding for US$127 billion in aircraft per year. The number of aircraft in service is expected to grow in the next twenty years from [the] current approximately 20,000 to over 40,000. Airlines are expanding the use of aircraft leasing for their funding, and the funding ratio of the aircraft leasing in the entire aircraft finance market is expected to reach 50% by 2020…

“The Fund will purchase aircraft with investors’ capital and other finance sources, and lease the aircraft to global airlines. The investors will receive dividends based on the cash flow coming from lease rent and sales proceeds of the aircraft. Japanese investors, such as financial institutions, institutional investors and pension funds, are seeking investment opportunities under current continuous difficult investment environment. Through establishment of the Fund, SuMi TRUST Bank provides new investment opportunities for those Japanese investors.”

Meanwhile, according to the Financial Times, retail investors have made an “unlikely hit” of Nikko Asset Management’s Global Robotics Equity Fund.

The article, headlined “Mrs Watanabe bets on robots to rule”, reports that “Predictions of the size of the global robotics and automation markets vary widely but Bank of America Merrill Lynch in a recent report forecast a US$153bn global robot and AI market by 2020”.

© 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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Brokers in search of a story spin GPIF’s intentions – yet again

Where would Japanese stockbrokers be without the Government Pension Investment Fund? Whether the market goes up, down or sideways it is always a signal that GPIF will start large-scale buying soon.

In the latest example staff from Morgan Stanley MUFG Securities and SMBC Nikko Securities, plus the “chief market strategist” at Resona Bank, have been telling Bloomberg that the recent drops in stock prices will oblige GPIF to start buying in order bring the value of such holdings back to benchmark levels.

Though not stated in the report, the benchmark for domestic equities is 25% plus-or-minus 9%. At the end of December, before the recent falls, holdings of local stocks were at 23.35%.

The brokers’ claims are backed by such sales patter as “Many foreigners think the pension rebalancing story is over” … but it is not. Rather, the story goes, retirement-fund buying will put a floor under the market.

Asset managers – the firms closest to pension fund action (or inaction) and whose orders provide brokers’ bento — have been mercifully quiet. Perhaps this is because they have read the Fund’s first-ever Periodic Review of Policy Asset Mix published on 1 June which said there was no need for change.

What the brokers perpetually forget is that GPIF is not just an investment operation; it exists to pay pensions to millions of people every month and to even more millions in future.

It has liabilities as well as assets to manage. Moreover, in recent years it has had to draw on its reserves to pay members’ pensions because it has more going out in benefits every month than it has coming in via members’ contributions.

It is not a mutual fund which can pass losses on to investors. It has statutory obligations and those obligations do not include providing support to the stock market — or to stockbrokers.

The also forget that the Fund’s domestic bonds benchmark of 35% is driven by the need for income and for the liquidity to pay benefits. Moreover, some of its bonds were bought 30 years ago to hold to maturity and have coupons over 4%. In today’s negative interest rate environment selling this treasure to buy stocks could inflict unnecessary damage.

Of course GPIF itself could help put the focus on reality by publishing its liabilities as well as its assets in its annual investment report which is due on 29 June.

© 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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