In-house team easily retains No1 slot in GPIF manager ranking

The in-house team at the Government Pension Investment Fund remained GPIF’s biggest asset manager by far in the year ending 31 March 2015 — even after paper issued by the government’s Fiscal Investment & Loan Program (FILP), which it holds to maturity, and the shrinking size of the Fund’s domestic bonds portfolio paper are taken into account.       Text continues below table.

GPIF top 10 asset managers 2012-2015

All the firms who featured in the top ten last time have also retained their positions but further down the ranking matters are not so stable with seven firms appearing in the list for the first time.

An updated table showing which funds manage what assets classes for the fund along with a full overall league table by amounts has just been posted in the GPIF section of ‘Giants’  (see tab to the right above).

© 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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GPIF asset allocation correction

The Government Pension Investment Fund has issued a correction to the asset allocation information contained in its latest annual investment report.

While the yen amounts reported as allocated to each segment were correct the percentages for which they account appear to have been wrongly calculated.

The pie chart below thus gives the wrong numbers. For the year ending 31 March 2015 these should be:

Domestic bonds 37.60%, domestic equities 23.04%, international bonds 13.23%, international equities 21.88%, short-term assets 0.61% and FILP 3.65%.

Sorry! I should have noticed this but the posting became entangled in one of the many moods of the software in which the blog is written, making for a delay of some hours and wearing my patience and proofreading time very thin.

 

 

 

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GPIF does well, more detailed information now a must

The Government Pension Investment Fund closed its financial year on 31 March 2015 with a portfolio worth a record 137.5 trillion yen thanks to its best investment performance since 2001 when it replaced the old Nenpuku.

GPIF total assets 2002-2014The world’s largest institutional investor had closed the previous year with assets of 126.6tr yen on which its newly published annual  report shows it made a return of 12.17%. This would have brought total holdings to 142.1tr yen.GPIF investment income ad drawdown 20010-20015

However GPIF now has more

going out in pensions each year than it has coming in via contributions and has to use part of its income to meet its benefits bill. It had previously forecast that the drawdown for this purpose in the 2014/15 year would need to be 5.5tr yen and that seems to have been almost the case.

Its sparkling investment performance was aided by a re-allocation of its portfolio, a boom in local stocks, a decline in the value of the yen which boosted the value of foreign investments and continued shrinkage in its holdings of Fiscal Investment & Loan Program (FILP) paper which were once forced on it by the Ministry of Finance.

Asset allocation has been adjusted over the year towards a new policy mix introduced after both internal and external reviews of the Fund’s operations. All the big shifts now to seem to be in place with little need to do more than opportunistic buying on dips and re-balancing in response to market movements.

Text continues below charts

 Asset allocation financial year 2013                 Asset allocation in financial 2014 year                                                                        (Please note correction in posting above.)

GPIF asset allo YE 2013 & 2014

The new policy mix is: domestic bonds 35% plus or minus 10%, domestic equities 25% plus or minus 9%, international bonds 15% plus or minus 4% and international equities 25% plus or minus 8%. It is from the Japanese bonds segment, which is largely managed inhouse, that any funds necessary to make up the shortfall between contributions and benefits payment are taken.

Domestic equities holdings have risen from 20.8tr yen at 31 March 2014 (when they accounted for 16.47% of holdings) to 31.7tr yen (or 22%) a year later, a rise of 52%. During this time the Nikkei 225 index rose 28.64%.

Foreign stocks have climbed over the same time from 14tr yen (15.6% of the portfolio) to 20.1tr yen (21%) a 43.6% jump. During the period the yen moved from 103.01 yen = US$1 to 119.99yen =US$1 – a decline which would have boosted the value of overseas equities by 16.4%.

GPIF’s long running exit from FILPs continued last year and they are now down to a book value of 5tr yen (or a wholly theoretical market value of 5.2tr) compared with over 30tr yen a decade ago. As this paper matures the proceeds are directed to other investments and FILP holdings should disappear entirely within two to three years (see table at top).

As with its third quarter report, the Fund omits any mention in its annual round up of how performance in the various components of its portfolio measured up to their benchmarks.

Having broken its old asset allocation mold the Fund now needs to tackle transparency and start publishing not just its investment results but a full income and expenditure statement each year.

This also needs to include forward projections of its benefits burden and to show how much it expects to draw down each year to meet its commitments.

It should also publish the result of its five yearly actuarial reviews views in a timely way and think about making these assessments more frequent.

GPIF assumed investment horizon 2During the heated debate on its future the Fund said that in about 10 years time it would enter a period in which contributions outweighed benefits before the current position reasserted itself some years later (see archive November 2014 Investing pensions: Plus ça change, plus c’est la même chose).

It produced no evidence for this assertion and the demographic data do not support it.

GPIF has often said that it will not invest in hedge funds until they become more transparent but while its present allocation to ‘alternatives’ is 0% that can grow within the bounds of the current policy mix to 5%.

More openness from within will help money management firms to design products tailored to the Fund’s needs and for which it can strongly suggest the reporting standards required.

The three tables under ‘The Giants’ tab above showing which asset management firms handle what for GPIF are up-to-date at 31 March 2014. They will shortly be replaced by those with newer statistics.

The large fall in the Fund’s allocation to domestic bonds saw external mandates for this segment reducing while the rise in allocations to Japanese equities brought Daiwa SB Investments and Schroders Investment Management (Japan) onto the roster.

© 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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Corporate stewardship reality lags far behind propaganda

For all the lofty talk of new approaches to Japanese corporate governance, with the appointment of independent directors and other ‘stewardship’ moves, down on the ground little is changing as old Japan finds ways to subvert progress.

Last week the Asahi Shimbun newspaper published the results of its survey of Nikkei 225 index companies which showed that retired high ranking civil servants now occupy 20% of ‘independent’ directorships.

The newspaper noted that the bureaucrats ‘have little or no corporate management experience’ to which  Hajime Yamazaki, visiting researcher at Rakuten Securities’ economic research institute, added that ‘the question remains whether they can contribute to improving the earning power of the company’.

The reverse is certainly true since each independent director receives a stipend of 10 million yen a year to attend one meeting a month.

Meanwhile shareholders hoping to get to as any annual general meetings as possible are stymied by 41% of the 970 companies listed on the Tokyo Exchange still holding their gatherings on the same day – this year 26 June.

As the country’s – and the world’s — largest institutional investor, the Government Pension Investment Fund is closely watched for clues about any impending asset re-allocation moves. In recent years the Fund has been a fraction less obsessively secretive than it once was but its current president Takahiro Mitani now seems to regret that.

According to the Nikkei, Mr Mitani has come to feel that ‘The quarterly disclosures of our portfolio may be too frequent’  because they arouse ‘wild speculation’ about  possibly impending market moves.

Since such speculation starts with sources in government when it wants to talk up the market, the obvious solution is to gag them   and make GPIF more open – not shift to a less regular reporting pattern.

Media owners too have their part to help in helping improve journalists’ understanding of GPIF and asset management generally. Today reporters are sometimes little more than cyphers for civil servants or firms talking their own book.

© 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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DB scheme numbers down & membership lower, but assets up

Amplification: Neither the posting below nor the source material on which it is based make clear that the yen amounts mentioned are solely those which life insurers and trust banks manage for their pension fund clients in pooled accounts. The numbers thus exclude the around 100,000+ billion yen in segregated accounts provided by investment advisory firms. Life cos and the trust banks nonetheless see their role as sokanji as extending to segregated accounts to which they provide such services  as custody.

Correction The original also wrongly stated that: ‘The figures do not include the 13,000+ covenant-type defined-benefit plans’. The figures do include those plans. ___________________________

Developments in that part of the corporate pension plan segment made up of Employee Pension Funds and other defined-benefit schemes followed a familiar path in the year ending 31 March 2015. Figures collected and published by the Life Insurance Association of Japan (LIAJ) show the number of scheme sponsors falling modestly along with the total number of members served but assets under management rising.

Text continues below tableFund schemes and EPFs at 31 March 2012-2015

There are several reasons behind the long-term decline of the number of schemes and their memberships.

The government is encouraging closure of those EPFs the bulk of which are now multi-employer arrangements covering a single industry in individual prefectures.

Some, but not all, of these dissolved schemes are replaced by either ‘fund’ or ‘covenant’ DBs, or by defined-contribution (DC) plans. At the same time a number of fund DBs are themselves being replaced by covenant DBs and some companies are grouping the retirement schemes of subsidiaries into a single fund – with Hitachi Ltd a notable case.

Moreover, as the population shrinks there are fewer people employed and new companies see little reason to set up DB funds of any kind.

The difference between ‘fund’ and ‘covenant’ DBs is in how they are governed which, in turn, depends on their previous form.

Fund DBs are reconstituted EPFs and have an existence separate from that of the sponsoring company. They are also required to have a sokanji, or organiser, a trust bank or life insurance company which is appointed when they were established and will stay with them for life.

Covenant funds are mostly former Tax-Qualified Plans (TQPs) which were very loosely regulated not by the Ministry of Health, Labour and Welfare, as they are today, but by the Ministry of Finance. They are managed mostly by corporate personnel or treasury departments and usually pay lump-sum benefits. Some of them have sokanji but they are not required to do so.

Only a dozen institutions are allowed to fulfill the sokanji role which includes acting as clients’ main custodian and managing much of their money in pooled accounts. They can also be formidable gatekeepers when it comes to letting other asset managers near their customer’s business.

By fiat smaller funds sign up with life cos while the bigger firms must go to trust banks.

As the LIAJ figures show, at 31 March 2015 this had put 9,000+ schemes, with combined assets of almost 16 trillion yen, in the arms of the insurers while just over 4,000 plans, with assets of 73.5 trillion yen, were with trust banks. All told assets rose by 1.43% year-on-year.

© 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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More domestic equities & foreign investments life co portfolios

The domestic stock holdings of Japan’s 42 life insurance companies hit 6.2% of their portfolios at the end of the financial year on 31 March 2015 – the highest since 2009 when Japan Post Insurance joined the Life Insurance Association, which publishes the numbers, and tipped aggregate holdings further towards domestic bonds.

In value terms the companies’ equities portfolios were 25.89% up year-on-year and 8.88% up quarter-on-quarter. The annual gain did not keep pace with the 28.64% rise in the Nikkei 225 stock index but that the rise continued into January-to-March, when the Nikkei fell, suggests that the gain came from actual buying, rather than revaluation.

Text continues below tablelife cos holdings at 2015-3-31

Japan Post Insurance has not yet published its annual report for the 2014/15 financial year but if its allocation to domestic equities changed during the period by as little as that of sister institution Japan Post Bank (see story immediately below) then the stock holdings of other companies in the sector may by now be at or near the record 7.3% for which they accounted in 2008

The 19.25% rise in the value of foreign securities holdings must also be seen in light of the fall in the value of the yen against the dollar which makes for translation gains of over 16% year-on-year. The climb is nonetheless significant.

© 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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Japan Post Bank’s JGB holdings hit little over half its portfolio

Japan Post Bank’s holdings of Japan Government Bonds was down to just 51.86% of its 205.86 trillion yen portfolio at the close of the financial year on 31 March, the institution’s annual report shows; yet Japanese shares continued, at 935 million yen, to account for a proportion of holdings so small that it accounts for 0.0%. Most of the proceeds from JGBs outflow seems to have gone into interbank lending.

Japan Post Bank Portfolio 2014-2015The government- owned bank plans to list on the Tokyo Stock Exchange in September or October this year and investors may soon start to ask why it is not doing more to optimise earnings on its investments.

If the equities market comes off its current highs meanwhile, government would most probably welcome the redirection of chunk of Post Bank’s bond hoard into stocks in order to improve valuations generally and to get a better price for Post Bank, Post Insurance and Post Holdings which aim to list together.

As previously noted (see archive 2015-5-1 Post Bank clout can support Tokyo stocks for years to come) if the Bank were to devote the same proportion of its portfolio to domestic equities as other inititutions do it could prop up any government price targets for a very long time.

Late last month a Bloomberg commentary quoted Shuichi Ohsaki, a rates strategist at Bank of America Merrill Lynch , as estimating that Post Bank would offload about 10 trillion yen of JGBs in the financial year started on 1 April 2015, compared with double that in the previous annual term.

Similarly, Tomohisa Fujiki, head of interest-rate strategy for Japan at Paribas SA in Tokyo thought that “The pace of the bond reduction by Japan Post … won’t be as speedy from here.”

“Japan Post” includes both Japan Post Bank and Japan Post Insurance. The latter has yet to publish it annual report to 31 March 2015.

© 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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95 trillion yen market yields up some of its secrets

A recent Pension Fund Association report on the activities of over 1,000 corporate retirement schemes has a wealth of information on trends in yields, asset allocation, management fees and the value and number of mandates in issue during the 17 years since asset managers were first allowed into the industry.

The data below are based on responses by PFA members to a questionnaire which it then analysed by type and size of fund.

Types of fund covered

In these tables an EPF [Employee Pension Fund] refers to an arrangement under which company schemes additionally assumed responsibility for collecting contributions to, and paying benefits from, a government scheme popularly known as the daiko. Since 2002 many of these have handed the task over to the Government Pension Investment Fund and thus become known as ‘DBs’ — though EPFs are themselves of the defined-benefit type. EPFs are now being phased out. Most of the 500 which remain are multi-company arrangements typically serving one industry in a single prefecture.

DB schemes (excluding EPFs) come in two types: fund and covenant. The difference is chiefly in governance with ‘fund’ plans run by teams of 2-3 (sometimes more) officers fulfilling roles with the same titles at each fund. These arrangements are mostly EPFs minus the daiko. Covenant schemes tend to be smaller, have a much greater tendency to pay lump sums and are often run by personnel or treasury departments, or by the company president’s office. They are mostly a reconstituted form of so-called ‘tax-qualified’ funds, the regulation of which was formerly with Ministry of Finance. DBs are today regulated by  the Ministry of Health, Labor & Welfare, as are EPFs.PFA members activities table 1

In the years before the pensions management market began to be deregulated in 1995, returns were a lot less than stellar might be supposed given that this was a boom time for the Tokyo Stock Market.PFA members activities table 2

In the year-ending 31 March 2014 EPFs did notably better than DBs – most probably because EPFs tend to be bigger. Unfortunately there is no breakdown of DBs by their type and size. If there were, and if the basis of the better performance is indeed size, then fund DBs may have done as well as EPFs.PFA members actisities table 5

People unfamiliar with Japan’s pension management market often claim that corporate pension funds have an asset allocation similar to the Government Pension Investment Fund. This not true. The bottom (blue) area below shows that in the year-ending 31 March 2014 domestic bonds made up just 27.9% of portfolios — about half the percentage for which they account at GPIF. The yellow area is domestic stocks while the green is foreign bonds. Shocking pink is foreign stocks, orange is ‘others’, which includes alternatives, and gray is ‘short-term’ holdings. The aquamarine area at the top is ‘other’ foreign stocks.PFA members activities table 7

At 85 trillion yen on 31 March 2014 the value of pension funds’ holdings had not quite returned to the pre-daiko-handover levels of 91tr yen eight years earlier. In US dollar terms the position is different since 91tr yen at US$1=117.263 yen amounts to less than 85tr yen at US$1=102.457 yen.  PFA Activities 4

The number of mandates in issue has also fallen both from its historical highs and compared with the early days of deregulation. PFA members activities table 8

Management fees seem to hsve stabilised around 0.30% PFA members activities tanbe 9

© 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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Japanese pension funds’ US stocks allocation rises 6.1% in Q4

Assets in discretionary accounts at Japan’s fund managers rose 18.38% in the financial year ending 31 March 2015 when they reached a record 199,176.9 billion yen, up 5.29% on the close of the previous quarter on 31 December 2014.

By client type, accounts managed for overseas customers provided the greatest annual growth climbing 35.93% to 32,437.6bn yen– a quarter-on-quarter rise of 8.16% — and now account for 16.29% of total business compared with 14.18% a year ago.

The numbers come from the just-published quarterly report of the Japan Investment Advisors Association (JIAA) and are based on returns submitted by its members.

Investments managed for the giant Government Pension Investment Fund (GPIF) continue to dominate the business with 87,797.6bn yen (up 12% year-on-year, 7% quarter-on-quarter) in just 260 mandates. This compares with corporate pension clients’ 4,537 mandates worth 28,359.6bn yen at 31 March, a 7.33% y-on-y climb but a mere 0.17% q-on-q.

difficultThe same pattern can be seen in the way portfolios are allocated.

Those commentators who are generally baffled by Japan but dimly perceive in its institutional investors something they think they can recognise were busy just ahead of the numbers announcement predicting (in the case of the Financial Times twice in a week) that pensions funds would make a big shift out of Japanese bonds and into domestic and foreign stocks. No doubt they will see the outturn as confirming their predictions.

It doesn’t.

Total allocations to Japanese bonds fell by 16.53% y-on-y but that is very old news (see archive 23 March 2015 for coverage of third quarter JIAA numbers). Quarter-on-quarter the value of these holdings fell 0.51%.

Domestic stocks held rose by 40.73% y-on-y but in the final quarter the increase was 13.05%. About a third of this is probably accounted for by inflows of foreign funds and market values rose over the three months by 10% (using the Nikkei 225 index as a measure.

Meanwhile investments in US stocks rose 30.6% y-on-y (much of it the result of exchange rate shifts not of flows) but slowed to a still substantial 6.10% q-on-q while the market rose almost 1.5% in the same period.

Discerning trends in the JIAA numbers is also complicated by the omission of funds which investors manage inhouse and thus the exclusion of 26 trillion yen in passively managed domestic bonds which does for itself (GPIF). This amount alone would sway the balance of overall portfolio holdings back in favour of bonds.

Also excluded is Japanese pensions money managed in pooled accounts at life insurers and trust banks (which is reported via a different channel) and amounts invested via segregated accounts at Resona Bank and Mitsubishi UFJ Trust & Banking which are not JIAA members.

© 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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Nomura looks set to rule mutual funds roost for years to come

Japan’s 20 fastest growing mutual fund firms saw their assets under management swell by an average of 80% in the year ending 31 March 2015. While that number includes some firms which entered the market only in the prior term, and were thus growing from a very low base, the average for the industry as a whole was still a respectable 21.1%. Mutual funds are called investment trusts in Japan.

Mutual fund firms by growth top 20 2015By total asset size Nomura Asset Management remains the market’s Very Big Beast expanding last year by 26.9% to 23,264.8 billion yen – over 8,900bn yen ahead of its nearest rival Daiwa Asset Management on 14,356.6bn yen.

The data come from an analysis of numbers submitted by the 70-odd asset managers in the business to their trade body, the Investment Trusts Association. The firms include in these returns only those funds which they offer directly to the market and so exclude any made available to other managers on a white-label basis. The numbers also exclude funds sold into the Japanese market directly from abroad.Mutal fund firms top 20 by AUM 2015

This year will see more competition for third place as currently fourth-ranked Mitsubishi Asset Management will take over fifth-placed Kokusai Asset Management in July and that should put the combined firm’s numbers very close to those of Nikko Asset Management,  the current number three on 10,364.1 yen.

The move is part of a final round of tidying up exercises left to be done after the repeated rounds of consolidation in the banking and insurance sectors in the 20 years from 1995 (see ‘Reference points’ in right-hand panel).

 

Five of the top 20 managers by size are foreign headquartered as are 12 of the next 20 including BlackRock Japan which grew by 38.3% to 382.5bn yen and so continued its steady climb from 34th three years ago to 27th. By contrast mutual fund assets at Schroder Investment Management grew by 11.8% but the firm slipped one place in the overall ranking from 39th to 40th – down from 37th in the year ending 31 March 2012.

Full versions of the ranking above will shortly appear under the ‘Rankings’ tab above.

© 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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