Déjà vu all over again for Government Pension Investment Fund

At the end of last week the Topix stock index was close to 12% down on its level three weeks earlier, there was widespread talk of Abénomics not working, and the value of the Japanese currency had been shown still vulnerable to sudden moves by ‘risk off’ investors.

Riding to the rescue came the talkative Prof Takatoshi Ito who last year chaired a panel looking at the asset allocation of the Government Pension Investment Fund, the world’s largest institutional investor, and how it could be rejigged to help Abénomics’ purposes.

On 14 October Prof Ito gave an interview to Bloomberg in which he announced that GPIF would make allocation changes beyond what the market expected. He did so by the simple device of noting that the Fund would be ‘stupid’ to publicize any such changes in advance.

On Friday 17 October Bloomberg published these views along with Prof Ito’s comment that ‘GPIF should shift holdings as much as possible now … [but] … the fund doesn’t seem to be doing so.’

On Saturday 18th October the Nikkei newspaper ran a report entirely devoid of sources saying (quelle surprise!) that GPIF was working out plans to put 25% its portfolio into Japanese stocks, not 20% as widely assumed, adding that the decision would be ‘finalized this month’.

In early trading on Monday 20 October the Topix index rose 3% to reach it highest in June 2013 with all 33 industry groups advancing.

Star dust or what? The promise of what GPIF will soon do has been used many times to boost the market but the fundamental question about how exactly Abénomics will   generate durable momentum for both the economy and stock prices remains unanswered and, to some extent, unasked.

© 2014 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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Mitsui Sumitomo Trust Bank still the power to beat in pooled

In the long-ago land before the mid-1990s when Japanese companies invested their pension funds solely via pooled accounts at trust banks or life insurers — like the US before the ERSIA legislation –  foreign institutions regarded the acquisition of a trust banking licence as giving them a toehold in a giant market on which they could build.

Only State Street Trust & Banking has remained in the sector since October last year. Then what was once Chase Trust Bank, before becoming SG, was acquired by the Sumitomo Mitsui Financial Group to become SMBC Trust Bank — which is unrelated to market-leader Sumitomo Mitsui Trust Bank which is part of Sumitomo Mitsui Trust Holdings and in Japanese is named the Mitsui Sumitomo Trust Bank (truly).  Text continues below table.

LIs & TBs pooled pension assets 2012-2014Among life insurance companies, which offer the same services but to smaller companies’ pension plans, only Gibraltar (formerly the US Prudential) and Axa Life remain following the decades-long consolidation in both banking and insurance. The merger mania began after Yasuda Trust & Banking had to be taken over by Fuji Bank (subsequently itself part of Mizuho Financial Group) in 1996 and a year later Nissan Life collapsed onto the arms to two subsequent owners before being absorbed into Gibraltar.

With the big domestic financial mergers now out of the way, a virtual non-poaching agreement in place and  pension funds — though still large — shrinking along with the population, the business of managing pooled pensions looks set to be one in which competitors strive to keep up rather than win market share.

The table, which uses data from the fortnightly newsletter Nenkin Joho, tells the story. The eagle-eyed will note that the total for trust banks is 10,000 billion yen less than the total for the same business given in the account based on Life Insurance Association of Japan figures reported below.

The LIAJ has long noted that the figures which it collects and publishes only as totals but of which it provides a breakdown to Nenkin Joho are at fair value. Nenkin Joho says that all the numbers it publishes including those from the LIAJ are at book value. This leads to the conclusion that Nenkin Joho‘s numbers for life cos are at fair value and those for trust banks at book.

© 2014 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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Japan Post acquires 40% stake in Saison Asset Management

Japan Post Co has agreed to acquire 40% of Saison Asset Management according to Bloomberg. The fund firm is an investment trust company which at 31 March 2014 had stewardship of just 82.9 billion yen of mutual fund assets. At the same time top-ranked Nomura Asset Management had 18,337bn yen. The move is said to be aimed at improving the range of investment products which Japan Post offers clients at its thousands of branches.

The mail firm is one of three units of Japan Post Holdings which aims go to public next year. Saison Asset Management is a subsidiary of Saison Credit which also offers credit card, leasing and real-estate services.

© 2014 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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Pooled corporate pension assets: fewer clients, better returns

Corporate pension funds money managed in pooled accounts at life insurers and trust banks grew by just 7.1% in the year ending 31 March 2014 to reach 84.54 trillion yen, figures published by the Life Insurance Association of Japan show.

The gain appears to be entirely from investment performance since the number of pooled acounts at LIs and TBs 2014pension fund clients declined by 2.80% during the term to 14,809 and the number of contributing members by 2.13% to 11.97 million.

The shrinking market was worse for the life cos which, by fiat, deal with smaller firms and asset values in the segment climbed by just 5.8% compared with the trust banks’ 7.4% — well behind the 13.8% annual gain in the segmented management sector.

The market could contract again next year as Employee Pension Funds (EPFs) are phased out and some may not qualify for conversion to DB funds.

Market share information comes from a source different from the headline numbers and will be available within the next two weeks.

© 2014 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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Panel on best corporate practice sets 8% as minimum ROE

The final report* of a 53-member panel set up by the Ministry of Economy, Trade & Industry to debate the global standards of corporate governance most applicable to Japan received little media coverage when it was published last month. Now its chairman, Professor Kunio Ito of Tokyo’s Hitotsubashi University, has been talking to Blooomberg:

September 17, 2014

The shareholder-return target Japan’s government set last month will spur change at the majority of the nation’s companies that don’t meet it, said Scott Callon, an investor who advised on the policy.

The 8 percent goal for return on equity agreed in a trade ministry review shows executives, government officials and investors are determined to see higher profits at Japanese businesses, according to Callon, who was the only foreigner on the panel that decided the target. A specific level will focus companies and give asset managers a standard to press them to achieve, he said. Just 792 of the 1,816 stocks on the Topix index have equity returns of at least 8 percent.

“This is the first explicit statement ever by the Japanese government that a minimum return is necessary in a public company to fund Japan’s future,” Callon, who oversees about $2.5 billion as head of Ichigo Asset Management Ltd., said in an interview in Tokyo on Sept. 8. “Driving low-performing companies to minimum acceptable levels is the biggest task. If you can get every company to 8 percent or above, that’s transformational.”

The report on best practices at the nation’s companies and financial industry, known as the Ito review after the panel’s chairman Kunio Ito, of Hitotsubashi University in Tokyo, is the latest measure aimed at making Japan’s companies more profitable and less prone to holding cash as the nation exits 15 years of deflation. Other steps include a government-backed stock index that picks companies with high profits and a stewardship code to enlist asset managers to engage in dialogue with firms on improving performance.

Below Average

The 44 percent of Topix companies making the grade compares with 78 percent of firms in the Standard & Poor’s 500 Index, data compiled by Bloomberg show. The profit delivered on shareholders’ funds at Topix companies was half the global average in the 10 years through 2013. The measure fell 0.5 percent today in Tokyo, while the Nikkei 225 Stock Average slid 0.1 percent.

The review says Japan’s ROE falls short because profit margins are “significantly lower” than in the U.S. and Europe and companies hold excessive cash and deposits. The 8 percent target was picked because it exceeds the cost of equity capital assumed by most overseas investors, the review states.

“I would describe this project, along with much of the revitalization strategy, as Japan opening up to the world,” said Callon, 49. “One powerful way to motivate Japanese actors is to say, ‘this is what the global standard is.’”

53 Members

The 53-member panel of academics, company representatives, investors and government officials debated for a year about which global best practices could be applied to Japan, paying particular heed to European models of corporate governance, Callon said, as they are less combative than the U.S. approach. While one goal was to attract overseas investors, the project’s ultimate motivation was to make the most of the nation’s assets in a mature economy with a shrinking population, he said.

The 130-page report, modeled on the Kay Review in the U.K., calls for the establishment of a forum for companies and shareholders to discuss issues from how businesses should disclose information to ensuring “constructive dialogue” between executives and investors. The debate about how companies are run in Japan has often been presented as a choice between focusing on customers and staff or shareholders, whereas those are not mutually exclusive, Callon said.

The management-investor forum will start this fall, most likely from October, and meet two or three times a year, Ito said at a conference in Tokyo on Sept. 10.

ROE Debate

A focus on ROE isn’t new in Japan and has its own dangers, according to Hajime Kitano, an equity strategist at Barclays Plc in Tokyo. The Ito review is a “rehash” of a book published in 1994, Kitano wrote in a note last month. The ROE level set is arbitrary, and too high as efforts to boost profit margins through cost cutting may end up amplifying deflationary pressures and shrink the economy, he said.

Others have the opposite concern. Targeting a specific level of ROE could create a misunderstanding that reaching that goal is enough, Naoki Kamiyama of Bank of America Corp.’s Merrill Lynch unit in Tokyo wrote in a report dated Aug. 13.

For Callon, who has degrees from Princeton and Stanford universities, the report is already having having an impact.

Ichigo Asset “went to see a Japanese public company last week,” he said. “The head of finance said he had assigned the Ito review to every single person in the finance department. They had all read it.”

Boosting Japanese companies’ performance through corporate governance was positioned as a key pillar of Prime Minister Shinzo Abe’s growth strategies announced in June.

No Place

“Business in Japan is being transformed,” Abe said in a letter translated by Merrill Lynch and read out at its investor forum in Tokyo on Sept. 10. “Strengthening corporate governance is at the top of my reform agenda. There will be no place for the old-style company in the age of Abenomics.”

The Ito review also criticizes Japan’s sell-side analysts, saying an overly short-term focus and insufficient fundamental analysis are problems that need to be addressed.

Mitsubishi UFJ Morgan Stanley Securities Co. is changing to a “back-to-basics approach” due to the criticism of the industry in the Ito review, and will focus more on company fundamentals, the brokerage wrote in a note dated Sept. 5. It’s changing its rating system from one that forecasts returns versus the Topix to peer comparisons or absolute returns.

The Ito review is supposed to complement the stewardship code, the JPX-Nikkei Index 400 and rules on corporate governance currently being planned by the Financial Services Agency and the Tokyo bourse, according to Callon, who says the change taking place in Japan has support across the spectrum of government and industry.

“The mainstream has gone full acceleration for reform,” said Callon, who’s been in Japan for 25 years. “It’s the first time in my career I’ve seen that.”

* For the full text of the report or an executive summary go to http://www.meti.go.jp/english/press/2014/0806_04.html and scroll down to “Text of the report”.

http://www.businessweek.com/news/2014-09-16/profit-laggards-seen-catching-up-as-japan-seeks-8-percent-return

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At pension funds demographics + decumulation = 20/30% JGBs

Figures just published* by the Japan Investment Advisors’ Association show that corporate and civil service pension schemes’ assets managed in segregated accounts under mandates held by JIAA member firms the rose only 0.53% in the first quarter of the 2014/15 financial year, ending 30 June, to reach 26,563.3 billion yen despite a 2% rise in the Nikkei 225 during the period and gains for European and US stocks. Year-on-year the number was up by 2.15%.

Such constrained increases are largely a result of the demographics that have drawn the funds into an era of decumulation where they will forever have more going out annually in benefits than they have coming in each year via contributions, and the gap is widening.

During the quarter the amount which JIAA members managed for the Government Pension Investment Fund rose 1.76% to 79,772.3bn yen, almost exactly three times what they invested for non-GPIF customers. While this rise was 4.53% year-on-year most of it came before the current financial year began.

(The sum managed for GPIF by JIAA member firms omits amounts under the stewardship of Resona Bank and Mitsubishi UFJ Trust and Banking, neither of which is a JIAA member, and the yen fixed-income portfolio which is managed in-house. It is therefore is less than than the giant’s own number for its total assets.)

While the number of mandates held in respect of non-GPIF funds fell again to reach 4,727, the lowest in a decade, mandates from the Fund rose to 232 from 226 a year ago.

All told, assets under management rose 2.48% quarter-on-quarter to 172,423.0bn yen of which 25,714.4bn yen came from overseas customers.

The JIAA does not break down its numbers to show in what asset classes each type of investor puts its funds.

Assuming that the amount under management for foreign clients is invested in Japan, then domestic clients, of which pensions make up 74%, appear to allocate their funds as follows:

  • Japan bonds 32.94% (down from 35.41% a year ago and 33.02% a quarter ago)
  • Japan stocks 26.25% (up from 23.82% and 25.43%)
  • Foreign bonds 27.49 (compared with 27.42% and 27.50%)
  • Foreign stocks 18.71% (compared with 16.43% and 18.32%).
  • The rest is in ‘real-estate related securities ’ and short-term investments.

Such dispositions are not inconsistent with the percentages reported by Pension Fund Association members (see story below), all of which are from the private sector. JIAA totals for Japanese pension funds other than GPIF are different from those of the Bank of Japan because they cover only segregated accounts and thus do not include money in pooled ‘general accounts’ at life insurers and trust banks (for an update on which see this blog next week).

GPIF has such a huge weight in JIAA totals that it is difficult to discern any trends among corporate schemes. However, it does appear that they too are holding on to their Japan Government Bonds. This is partly a function of their need for cash to pay mounting benefits bills.

JIAA numbers do not include amounts managed for mutual funds. These appear instead from the Japan Investment Trusts Association.

* Currently in Japanese only at www.jiaa.or.jp/toukei. Usually available in English after about one week at www.jiaa.or.jp/toukei_e/index.html

© 2014 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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PFA report on member funds’ asset allocation and returns

A Pension Fund Association survey of asset allocation at the company retirement schemes which make up its membership shows that at 31 March 2013 they had 14.90% of their portfolios in Japanese stock, 27.6% in domestic bonds, 12.96 in overseas bonds and 16.76% in foreign stocks. Of the rest, 13.47% was in so-called ‘general’, or pooled, accounts with trust banks and life insurers and the remainder in other assets. The survey was done among 1,300 of the PFA’s 1,560 members of whom around 70% (or 900) responded.

For the year under review foreign equities brought in the best return at 28.45% while local stocks delivered 17.51%. Japanese bonds predictably earned next to nothing at 0.66% while overseas fixed income hit 11.89%.

It has long made sense for company retirement schemes to invest in growth economies abroad. They are caught in a double demographic bind which is shrinking the country’s workforce, and therefore opportunities for investment in growth companies at home, and has at the same time set them on course for annual decreases in contributing members and  increases in the numbers of retirees as far as the eye can see.

With the yen having now apparently ceased its perpetual strengthening and stable at above 100 to the US dollar, company schemes can go offshore without fearing that their rewards will disappear on conversion into the local currency.

Even so, growth in the percentage of corporate schemes’ portfolios accounted for by overseas equities has not been smooth and it has not yet topped the 17.53% seen in 2010. Similarly, the drop on holdings of domestic stocks has seen bumps along the way but by March last year was at a very low 14.90%.

PFA asset allocation 2008-2013The PFA’s survey results give only percentages and  no yen numbers — not even for the total amount which members have under management. This has led to media coverage which has struggled to give context to the report.

So much so that one newsletter confused the value of PFA members’ funds with the 11.7 trillion yen which the Association manages on behalf those who have left their jobs and therefore their employers’ schemes.

Another conflated the PFA report with one published by the Nikkei around the same time based on data from 300 ‘major’ (not further defined) companies’ pension funds which put their total assets at 48tr yen at the end of March 2014 when Bank  of Japan flow of funds data put corporate schemes’ assets at 120.9tr yen.

The total ‘portfolio’ figures in the table above are those of the Bank of Japan. Remember not all PFA funds were included in the survey results of which are here

 © 2014 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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Will Shiozaki use GPIF’s clout to see off cross shareholdings?

The surprise appointment of Yasuhisa Shiozaki as Minster of Health, Labour & Welfare, and thus the man with oversight of the Government Pension Investment Fund, announced on 3 September as part of a cabinet reshuffle, has been trumpted for its potential to bring to GPIF the revolutionary asset allocation changes the stock market would like to see.

The new minister lost no time in recommending that the Fund move into venture capital noting that, according to the Nikkei, “‘No professional [investor] in the world holds to the stereotype of venture-stage companies as dangerous” … [before] arguing that adding start-ups to the Fund’s investments could both generate returns and provide risk capital for economic growth’.

Yasuhisa ShiozakiMr Shiozaki (pictured at left) had previously spoken of the need to make changes to the GPIF’s governance before re-jigging its portfolio (see archive 6 August 2014) but with a plan to restructure holdings now expected within the current calendar month there would be little time for such moves to be digested – which may be the point.

This former cabinet secretary and Bank of Japan official also has ambitions to change the structure and governance of Japan’s publicly quoted companies and it should not be surprising if he began waving the big stick of GPIF – the world’s largest institutional investor – to chastise companies which cling to cross-shareholding arrangements.

These, he believes, allow firms to be unresponsive to shareholders’ needs.

As ijapicap reported on 14 April this year in a posting on the introduction of the new corporate stewardship code :

“[Mr Shiozaki said that] ‘Japan … could implement regulations to reduce cross-held shares within a deadline of five years’ but did not say when such rules might be written.

“He noted too that ‘cross-held shares were once pervasive in Germany … until former German Chancellor Gerhard Schroeder oversaw reforms to pare back the practice. This helped improve the efficiency of companies’.

“Mr Shiozaki reports a ‘very stimulating discussion’ on this point with Mr Schroeder with whom he also spoke on the requirement in the German and UK governance codes for companies to appoint a certain number of outside directors.

“He believes such codes ‘carry more weight than principles mandated by securities exchanges’ and that in Japan the Ministry of Economy, Trade & Industry would anyway not approve efforts to mandate appointments of outside directors based on exchange rules ‘reflecting opposition from [the] Japan Business Federation’.

“He then added, intriguingly, ‘I plan to enact the changes in one shot if I become prime minister’”.

Perhaps he is now plans to move via a different route.

© 2014 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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Government Pension Investment Fund closer to 20% in stocks

The Government Pension Investment Fund closed the first quarter of the 2014-15 financial year on 30 June with 47.63% of its portfolio invested in the Japanese bond market compared with 49.01% three months earlier.

The giant vehicle’s holdings of FILP (Fiscal investment and Loan Programme paper) also continued to fall on the schedule set when the former Nenpuku became GPIF in 2002.

As a result, overall holdings of Japanese debt fell from 55.43% of end-March total assets of 126,577.1 billion yen to 53.36% of 127,264bn yen, a drop of 2,249.4bn yen. Text continues below charts.

GPIF assets March & June 2014 pie chartsThe biggest beneficiaries were short-term assets which rose from 1.46% to 2.34%, to stand at 2,973.7bn yen, and Japanese equities which climbed from 16.47% to 17.26% to 21,070.9bn yen – a jump of 1,124.3bn yen.

There has been a widespread belief among Japan’s asset management community that GPIF would raise its target allocation to stocks to 20%. If its buying has been maintained during July and August, as seems likely, and continues into September, then by the end of the second quarter it will have only 2% to go.

That would mean another 2tr yen flowing into the market – around the same amount that the three mutual aid associations which move under GPIF’s umbrella next year are also expected to commit to equities (see archive 11 August 2014 Big three mutual aid associations ready to line up with GPIF)

The more interesting point from here on will be how much all four funds will send abroad. According to the Nikkei on 30 August:

‘With the GPIF revising its investment strategy and mutual aid pension funds expanding their overseas portfolios, associated yen-selling from July onwards will reach at least 13.7 trillion yen, according to an estimate by Goldman Sachs Japan.

‘”Expectations of an onslaught of yen sales is pushing the drop in its value,” said Goldman’s Masahiro Nishikawa.”‘

© 2014 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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Life cos’ foreign assets up 12%, long-awaited exodus begins

The foreign securities holdings of Japan’s 43 life insurance companies were up 12.35% year-on-year at 30 June when they reached 63,822 billion yen while total invested assets rose 2.40% to 345,751bn yen, according to figures just published by the Life Insurance Association of Japan.

Overseas stocks and bonds made up 18.5% of all portfolios, the highest since 2007 when Japan Post Insurance joined the industry group and pushed the proportion down to 13.5% of total invested assets of 320,404bn yen.  Story continues below table.

Life cos assets 30 June 2014At the close of the prior quarter on 31 March 2014, Japan Post Insurance had foreign securities holdings of 1,519bn yen (see story immediately below) or 2.5% of the all-firms’ total.

If JP Insurance bought during the quarter ending 30 June all of the 300bn yen in foreign bonds it indicated it may acquire in the current financial year, that would mean other life cos’ overseas holdings have risen by 2,071bn yen — or an amount similar to that of the postal giant at each of the large players.

While all the LIAJ’s 43 members submit numbers to it the market is dominated by half a dozen firms. With the start of the financial year on 1 April these giants and their smaller brethren will have begun implementing asset allocation decisions made in the New Year.

In its most recent semi-annual poll of those intentions, Reuters found (see archive 29 April 2014 Life cos tend to caution not big shifts in asset allocation) increased overseas investment to be the only discernible trend. But much depended on the track taken by the Japanese currency.

On 1 April 2014 the yen was at US$1=103.54 (yen 1 = US$0.0096581). By 30 June it had risen by 2.2% to US$1=101.29 (0.0098726) resulting in a comparable impact on foreign holdings at the valuation date. Today the yen was back at US$1=103.74.

It looks as though the long-awaited investment exodus by the life cos may have begun but another couple of quarters will be needed before it can be said to be firmly in place.

© 2014 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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