Corporate pension funds look low on foreign stocks v. GPIF

Assets in the discretionary stewardship of Japan’s fund managers rose 2.98% during the first financial quarter ending on 30 June to reach a record 205 trillion yen, figures released by the Japan Investment Advisors Association (JIAA) show.  The bulk of the business was sourced from domestic pension funds but 32.7tr yen came via 1,115 mandates from clients overseas.

The firms held 4,441 domestic corporate pensions mandates, down 91 on the previous quarter, and 265 government mandates, up by five on January to March.

The asset allocation of their portfolios taken as a whole was notably more stable than in recent quarters — with 19.53% in Japanese bonds (compared with 19.99% three months prior and 28.03 a year earlier) and 26.87% in domestic stocks (respectively 25.96% and 22.34%)

This is not surprising given that the Government Pension Investment Fund accounts for around 45% of all money under discretionary management and over the same period it completed implementation of a new asset allocation policy which saw a marked shift from bonds to stocks.

As GPIF manages its passive domestic bond portfolio in house this does not show in the JIAA figures. Neither do amounts managed by Resona Bank and Mitsubishi UFJ Trust & Banking, which are not members of the Association, nor sums held in pooled accounts at life insurers and trust banks.

Bearing all that in mind, a quick back-of-the-envelope calculation to remove the amounts which GPIF is known to have invested in each category suggests but does not prove that the country’s corporate pension funds were disposed at 30 June as follows:

Domestic bonds 19.55%, or 40.08tr yen;

Domestic stocks 26.90%, or 55.16tr yen;

Foreign bonds 23.20%, or 47.58tr yen;

Foreign equities 18.82%, or 38.60tr yen;

Other (including ‘short-term’ and ‘real estate-related securities’) 11.53% or 23.64tr yen.

[These percentages are quite different from those found in a recent J.P.Morgan poll of 131 pension funds. See 14 September posting below “Are interest rates or demographics driving asset allocation?]

The international part of the portfolio is an inversion of today’s GPIF holdings where bonds account for just 13.08% of overall investments and equities for 22.32%.

With GPIF giving the lead, fund management firms could find corporate retirement schemes’ interest foreign stocks rising.

Today company pensions have almost as much invested in American equities as those of all other markets combined but those seeking. Yet if rises in US interest rates push down the country’s stock valuations they could still attract more interest from long-only equity investors for whom the cost of credit is immaterial.

© 2015 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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US, Japan & UK hold 82% of world’s defined-benefit treasure

Defined benefit penion assets by country 2014 & 2015Japan held on to its ranking as home of the world’s second largest pool of defined-benefit pensions in 2015 when its assets in the category reached US$2,636.16 billion.

The numbers are derived from Willis Towers Watson’s latest yearly Global Pension Assets study which shows that the total value of defined-benefit [DB] and defined-contribution [DC] retirement funds worldwide fell in the 12 months to 31 December by 0.5% in US dollar terms.

At the same time Japan saw its total pension assets rise by a little over 2% in both US dollar and yen terms. [The year started at US$1=120.21 yen and ended at US$1=120.24 yen.]

The holdings of the country’s DB plans fell by 5.04% — a probable consequence of dire demographics having tipped so many of its schemes into perpetually having more going out in benefits than they do coming in as income.

© 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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Post Bank signals ambition to do equities investment inhouse

“Japan Post Bank plans to start in-house investments in stocks in the second half of 2016, according to Katsunori Sago, the bank’s vice president in charge of asset management”, according to the Japan Times.

Nonetheless the caution expressed in two blogs below (Post Bank again trumpets eventual diversification, January 26th and Post Bank to make big leap in asset allocation, but 21 January, but …) about expecting too much too soon from this move still apply.

It is unclear why an institution which today uses trust bank and life companies’ general accounts to invest a very small amount in equities would skip the obvious next step of issuing specialist mandates to fund managers.

Japan Post Bank Portfolio 2014-2015Instead, says Mr Sago, who is a former vice president and vice chairman of Goldman Sachs Japan will: “hope to increase the number of employees involved in asset management by at least 30 percent in the next 18 months to two years” from the current level of about 100.

At 30 September 2015 the bank had around  205 trillion yen in assets under management,  over 45% of it in Japan Government Bonds.

© 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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Japan Post Insurance publishes better but boring annual report

The report for the financial year to 31 March 2015, just published by Japan Post Insurance, gives more information than usual and is better presented than previously, as befits an entity subsequently listed in the Japan Stock Exchange.

But the investment portfolio on which the publication reports could not be more boring — even by the standards of life insurance companies which must necessarily exercise prudence.

Japan Post portfolio 2014 & 2015The insurance firm’s JGB holdings are now 72.6% of its securities holdings and it still has so little in domestic equities that the proportion shows as 0.0%.

Post  Insurance states that its twin portfolio management aims are to:

  • Promote matching between assets and liabilities; and
  • Take asset management risks as far as acceptable and push forward the diversification of our investment assets to improve profitability.

In looking to establish the acceptable extent of the risks the firm need look no further than the holdings of its competitors.

At 31 March last year the 42 members of the Life Insurance Association of Japan had just 40.5% of their portfolios in JGBs. Since Post Insurance is the largest Association member that proportion shrinks to 35% when its number are removed from the totals.

A more honest statement of intent might have been that Post Insurance plans to diversify its portfolio just as soon as the government of Japan feels that it can stop treating it as an ATM and therefore stop obliging it to invest in JGBs.

© 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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Post Bank again trumpets eventual portfolio diversification

As GPIF did before it, Post Bank is proving profligate in advertising the charms of winning its business to service providers in sectors beyond cash equities and bonds.

The institution ‘plans to press regulators to allow [it] to invest in mutual funds, stock index futures and options for a diversified portfolio’ an executive vice president told the Nikkei on Monday.

‘We want to broaden our investment targets and improve earnings to the extent possible’, said Katsunori Sago, who is in charge of asset management at the bank. A former vice chairman at Goldman Sachs Japan, Sago joined the unit of Japan Post Holdings in June.

The purpose of Post Bank trailing intentions so far in advance of receiving the necessary regulatory permissions is unclear.

© 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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Japan Post Bank to make ‘big leap’ in asset allocation, but…

Japan Post Bank chief investment officer Katsunori Sago highlighted the portfolio changes which the giant institution has in its sights in a interview with Reuters published yesterday.

The shifts make more sense when read alongside a depiction of Post Bank’s current allocations – brought to you below by your favourite financial web site.

Text continues after table

Japan Post Bank Portfolio 2014-2015Bear in mind that: most of the potential shifts would be from very low bases, are specifically made dependent on ‘market conditions’, and were announced during stock market slide so this may amount to government yet again prompting institutions in which it has an interest to indicate that they will be buying.

Moreover, the moves have also been flagged before – notably by Post Bank president Masatsugu Nagato in an interview with the Financial Times a day before its listing on the Japan Stock Exchange on 5 November 2015

Japan Post Insurance, which was listed on the same day, has a very much larger investment portfolio but has been much quieter about its investment intentions.

© 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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Shadow of economic collapse creeps over Japanese society

Late last week saw publication of two reports which institutional investors in Japan, and those who watch them, cannot afford to miss.

The Japan Centre for Economic Research is far from being a flighty outfit given to courting media coverage, so its unexcitingly titled 42nd Medium-Term Forecast for the Japanese Economy: Reform Scenario FY 2015-FY2030 would be easy to miss.

Once found it is five pages of unputdownable reading which begins:

“The Japanese economy remains at a standstill, with deteriorating external environments added after the negative growth due to the consumption tax hike in fiscal (FY) 2014. The major factor behind the poor growth is structural problems that have not yet been solved. As the falling population and stagnant investment efficiency and productivity are undermining Japan, the shadow of an economic collapse is creeping over Japanese society…”

Taking government’s current policies and companies’ present investment patterns as the baseline scenario, it predicts that Japan’s economic growth potential will decline after the 2020 Tokyo Olympics and plunge into constant contraction in the second half of the 2020s.

Scary stuff, with charts!

The FT’s Japan and the World supplement is worth reading in its entirety but go first to the Q&A with the paper’s chief economics commentator Martin Wolf under the headline Is Abenomics bound to fail?

© 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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GPIF Debates 3% Stock Cap in Push for In-House Investing

The world’s biggest pension fund signaled a willingness to cap direct holdings at 3 percent of a company’s stock as it seeks freedom to invest in equities itself rather than hiring asset managers.

For full story see

 

 

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Pension funds turn rainmakers after long drought

The year ending 31 March was a good one for most of the 400 Japanese defined-benefit, corporate pension funds responding to the annual request for data from Nenkin Joho, the bi-weekly newsletter published by Rating & Information which is the actuarial consulting subsidiary of the Nikkei newspaper group.

Many recorded double digit returns for the first time in years while just one reported a loss.

Top 10 PFs by yield YE 1015-3-31The funds which recorded the best outcomes were, in the main, relatively small with only one from among the top 20 by asset size – the multi-company Osaka Pharmaceutical — making into the top ten by returns.

As firms with fewer than 300 employees when their funds were started were steered away from starting old-style Employee Pension Funds (EPFs) and towards so-called Tax-Qualified plans, smaller firms now tend to have the Covenant DBs which are TQPs successors.

Unlike Fund DBs (the successor structure to EPFs) they do not have their own distinct governance structures and are most often run by personnel or treasury departments. They did very well last year perhaps aided by a size which makes them nippier.

The results of Nenkin Joho’s yearly survey should be read with an eye to participation in it being voluntary. This gives pension funds with terrible performance an incentive for not filing — even at the expense of upsetting Nenkin Joho/R&I which most would rather not.

Still others simply do not fund the time in some years. Thus Sakai Trading Co Ltd, Superbag Co Ltd and the Tourism Industry fund all took several year gaps as they re-organised from one structure to another but have now returned.

More significantly, the Hitachi Ltd fund, which led the table by size for many years has not filed since submitting its numbers for the annual term ending 31 March 201. At that time it was still bringing the funds of what had been subsidiaries into its main pensions pool and already had assets of 812,924 million yen – well ahead of today’s leader.

Top 20 PFs by assets YE 2015-3-31© 2015 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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Much amiss in media reporting of Japanese pension investment

Numbers from the Japan Investment Advisors’ Association based on statistics submitted by its members give the lie to two popular, oft-repeated and un-sourced themes in the overseas pensions press.

The first regularly asserts that fund managers are being attracted to Tokyo by the growing potential for winning business from company pension funds

The second maintains that the giant Government Pension Investment Fund is soon to bring in house management of the passive portion of its domestic equities portfolio. This would take around 27,462.9 billion yen off the market

FMs' DB pension assets under magement Q2 2015~16The Association’s figures show that the number of corporate pensions’ mandates in issue has been in continuous decline since peaking at 5,028 in the 2010/11 financial year, falling again in the second quarter of the 2015/16 year to reach 4,366 — 1.69% down on the previous quarter and -6.79% year-on-year.

Over the same period amounts under management for company retirement plans have fallen (though not in a straight line) from 30,990.5 billion yen at 31 March 2006 to 26,265bn yen on 30 September 2015. However, the most recent declines, -6.98% quarter-on-quarter and -3.14% year-on-year, seem to reflect market performance (see second table) as much as mandates being lost.

Text continues below tableFMs'DB persion assets by assert class Q2 2015~16                                                                      The average size of corporate mandates remains at over 6bn yen each (US$50mn at end-September exchange rates).

The Government Pension Investment Fund dominates the ‘public’ pensions section of the JIAA’s numbers. These show that far from gearing up to bring funds in house this part of the market has more mandates in issue than at any time since 1995 when the pensions market was first deregulated.

At 30 September 330 such arrangements were worth an average of 265bn yen each.

The Fund has long handled in house the bulk of the passive portion of its 51,691.5bn yen domestic bonds portfolio.

Since Mitsubishi UFJ Trust & Banking and Resona Bank are not members of the JIAA pension amounts which they have under management do not show in the Association’s numbers.

Please note also that when totalled the numbers in the two tables presented here do not correspond. That is because the figures in the first table do not include amounts managed for non-Japanese customers while those in the second do.

© 2015 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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