Pension Fund Association takes aim at cross-shareholdings

Corporate cross-shareholdings are distorting the stock market and frustrating better company management, Pension Fund Association CIO Daisuke Hamaguchi (pictured left)  told Asian Investor during the magazine’s annual Institutional Investor Forum.

His remarks are a strong echo of those made to the Nikkei in 2014 by then newly appointed Minster of Health, Labour & Welfare Yasuhisa Shiozaki (see archive 5 September 2014 Will Shiozaki use GPIF’s clout to see off cross shareholdings?).

Like Mr Shiozaki (right), Mr Hamaguchi pointed to the German experience in successfully bringing an end the same situation.

In the two and half years since the Minster’s remarks, the tangentially related problem of large government-linked investors dominating the market has also intensified.

The Bank of Japan has increased it shareholdings under its quantative easing program while the Government Pension Investment Fund and the Post Office institutions have done the same in bids to offset the impact on their portfolios of the BoJ’s actions in the bond market which have caused yields there to drop to zero.

A Corporate Governance Code and a Stewardship Code have been introduced since Mr Shiozaki’s appointment but Mr Hamaguchi told Asia Investor that when very large stakes in companies are owned as part of cross-holding understandings their managements can simply ignore the views of their more active investors.

The Pension Fund Association’s chief role if to manage the currently around 11.8 trillion yen owned as part of their previous employment by staff who have changed jobs.

Despite its name, the PFA is an arm of the Ministry of Health which also has has ultimate oversight of the Government Pension Investment Fund.

GPIF has been very vocal on how it expects assets managers to work with the directors of under-performing companies and has made plain that it will not award its own massive mandates to those which do not comply.

Mr Hamaguchi notes that the current Corporate Governance Code requirement that companies simply state why they have cross-holdings produces the answer that it is to maintain ‘transactional relationships’ and nothing else.

His solution is to exempt sales of such stakes from capital gains tax but with so many Japanese companies and especially its banks – where cross-holdings are substantial – having surplus cash it is doubtful that this would prove to be enough of an incentive.

© 2017 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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Life cos (-Post Insurance) now have 30% of their money abroad

The proportion of Japanese life cos’ portfolios invested in foreign securities is continuing its steady rise, according to figures just published by Life Insurance Association of Japan.

At the close of the third quarter on 31 December the level had reached 22.9% thanks in part to a fall during the term of 15% in value of the yen against the US dollar which flattered assets held in that currency when converted to the Japanese unit.

The trend has been forecast for so long (see archive 9 April 2013 for one of the earliest predictions) that the new numbers will surprise to no one — except those who had been forecasting a steeper climb.

And a steeper rise can indeed be discerned. If the numbers for Japan Post Insurance, the biggest entity in the business and a super-conservative investor, are deducted from the LIAJ members’ total the proportion of assets in foreign investments is over 30%.

                Note that the percentages in the table below are on a slightly different basis (% of securities and loans investment) from those in the table above  (where the are % of all investments).

Evidence that this is not purely theoretical come from Nippon Life’s recently reported results for the same quarter which show its overseas holdings to be 32.8% of its portfolio.

Also notable is the almost 15% of Nippon Life held in domestic stocks. This compares with  compared to for 7.72% LIAJ members without Post Insurance and just 1.9% for the postal giant.                                                                                                 It is not hard to see why the Nikkei likes to quote sources who dub the Postal Insurance the ‘blue whale’ for the colour of its logo and its ability to provide huge buoyancy to the stock market were it to start   increasing the proportion of its portfolio held in local equities to the same level as other LIAJ members.

As continuing low interest rates and expectations of market volatility continue to challenge insurance firms and other institutional investors, they are looking increasingly to boost returns by acquiring assets such as loans.

In February Reuters reported that Nippon Life had made it first overseas move in this direction by buying a US$100 million 10-year project finance facility which Bank of Tokyo-Mitsubishi UFJ had extended to an LNG project in the US.

A month before Ryusuke Sakakibara, deputy general manager at Nippon  Life’s corporate finance structuring office, said the company was also looking for opportunities to make overseas project finance loans in the primary market.

© 2017 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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Development Bank of Japan goes to Hastings for infrastructure

Australia-based Hastings Funds Management has won a mandate from the Development Bank of Japan and its subsidiary DBJ Asset Management Co to invest an undisclosed amount in infrastructure debt, according to an announcement from the company.

The funds may be earmarked for clean energy generation where DBJ had recently placed much emphasis. In January it announced it had become an 8% shareholder in the Cricket Valley Energy Center, located in Dutchess County, New York, where a joint venture majority owned by Chubu Electric Power and TEPCO Fuel & Power will build a 1,100 MW natural gas-fired power station.

The main purpose of this exercise was said to be the lessons to be gained from selling electricity into a relatively less regulated market given Japan’s now ‘rapidly liberalizing’ electricity sector.

Hastings CEO Andrew Day expressed the firm’s pleasure at having established another important investment relationship with a major Japanese partner.

According Pensions & Investments Europe ‘One of Hastings’ earlier mandates came from the RBS Group Pension Fund in the UK, which, in 2012, allocated [to the firm] an initial £750m  …  to manage and develop private market infrastructure assets.’

In the same year the pension fund’s sponsor, formerly known as Royal Bank of Scotland which was bailed out by the UK government in 2008, sold its aircraft financing business to Mitsubishi UFJ.

In December 2014 MUFJ’s mega-bank rival Sumitomo Mitsui Trust Bank appointed Hastings to invest in European infrastructure debt on its behalf.

At the end of January the firm had A$3 billion in funds under management in over 40 types of infrastructure debt from around the world.

© 2017 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 invites passive domestic equities firms to join register

A registration system for asset managers which the Government Pension Investment Fund’s announced last year made its debut yesterday when passive managers of Japanese equities were invited to submit their details by 27 March.

Next in line for sign-up are firms that wish to be considered for active or passive management of non-Japanese stocks.

The document outlining the details which applicants for registration will be expected to submit notes that the purpose of the scheme is ‘to have more flexibility on Manager Selection and to have access to new investment idea and expertise of Asset Managers’. It makes no mention of GPIF’s wish to ‘strengthen our stewardship activities’ but this desire sets the context of yesterday’s invitation to passive managers where it appears as the first line.

The Fund sees itself as something of a standard bearer for an active stewardship style in which asset managers engage with corporate managements to tell them where they are going wrong. GPIF has been clear that it expects no less engagement when a company’s stock is held as part of a passive strategy and is not selected on any inherent merits.

Fund staff are also on record as wishing to bring some equities management inhouse.

Firms seeking registration will need to have been approved to do business in Japan under the country’s Financial Instrument and Exchange Act and to be already managing 100 billion yen on behalf of foreign or local pension funds.

Once on the register the firms will be expected to submit monthly performance data.

The details which GPIF has published so far do not include any assurances that data submitted will be kept confidential or any information on who will have access to the register.

This could present problems if the Fund’s reviews of applicants’ investment processes requires them to reveal details of their stock selection structures, though some of these will already have intellectual property protection.

The introduction of the scheme is a reflection of just how hard it is for an institutional investor in an age of low yields and high market volatility to be in possession of all the data on suppliers and strategies that it needs to navigate toward its goals.

For who currently managers what and how for GPIF see under ‘The Giants’ tab at the top of this page.

© 2017 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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Record Q3 results from Government Pension Investment Fund

Investment income at the Government Pension Investment Fund hit a bumper 10,497 billion yen in the third quarter of the 2016/17 financial year, ending 31 December, bringing returns for the year to date to 7,637.8bn yen when a first quarter loss of 5,234.2bn yen and second quarter earnings of 2,374.6bn are taken into account.

The number is good enough to overwhelm last year’s loss of 5,309.8bn yen, barring accidents in the fourth quarter.

Total assets at the Fund now stand at record 144,803.8bn yen.        All the shifts in asset allocation  during the quarter appear to be the result of changes in investment or foreign exchange markets — with the exception of a shrinkage in short-term holdings, from a hefty 8.75% to 6.46%, and a 493.8bn yen decline in holdings of debt issued by the Fiscal Investment & Loan Program (zaito). The proceeds from this maturing paper, which counts as ‘domestic bonds’, were most probably redeployed to foreign or domestic equity investments which both saw rises of more than 2%.

Domestic bonds now account for 33.26% of the portfolio down from 35.15% three months earlier.

The Fund’s policy mix is domestic bonds 35% (± 10%), domestic equities 25% (± 9%), foreign bonds 15% (± 4%) and foreign equities 25% ±8%). Alternative investments are 0.07% (to a maximum of 5%)

GPIF first leaked its excellent third quarter results at the end of the November (see archive 1 December) and then again earlier this week (see below).

This is inappropriate for a body which has made so much of being a standard bearer for better governance and threatens trouble down the road of the Fund brings more of its money management activities inhouse which it has already said it wishes to do.

© 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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Why the Japanese market in mid-sized M&A deals is ‘buzzing’

An interesting and informative article by o-founder and partner at ROC Partners, on why the market in mid-sized Japanese private equity deals is ‘buzzing’ appears here.

The story touches on the Merger and Acquisition Association of Japan, the  information exchange set up by Nihon M&A, Japan’s biggest player.

ROC Partners is the successor entity to Macquarie Group’s private equity fund-of-funds business which was bought out in 2014 by its senior executives.

© 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’s 2016/17 third quarter return a record says Nikkei

According to the Nikkei the “Government Pension Investment Fund [has] earned its largest-ever quarterly return by far, with a profit of roughly 10 trillion yen ($89.3 billion) on investments in the October-December period.

“The massive return for the world’s biggest pension fund came as the value of foreign-currency-denominated assets rose, buoyed by stock rallies and a weaker yen triggered by Donald Trump’s U.S. presidential election win. The previous record of 7.6 trillion yen was achieved in January-March 2013, when the Japanese stock market was swept up by optimism for Prime Minister Shinzo Abe’s economic policy”.

The story gives no further numbers and GPIF has yet to announce its third quarter results.

© 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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Pooled pensions business stays where it has long been

The league tables of life insurers and trust banks managing pension funds’ investments in pooled accounts and tokkin, where newcomers would find significant barriers to entry, remained very much the same at the end of the financial year on 31 March, according to a recent report in Nenkin Joho which uses book values in its rankings.

On this basis, pooled assets under management fell by an overall 2.9% compared with a decline of on 8.52% when measured by market values (as already reported in Pooled pensions biz holds up slightly better than segregated see below). The drop comes from a decline in the number of pension funds which is, in turn, due to schemes closing, changing type or merging.

The business in tokkin accounts fared a little better at -1.47% than that in pooled arrangements which fell by 6%.

Tokkin are directed money trusts. Nenkin Joho is a fortnightly newsletter from Rating & Investment Information which is part of the publications group centred in the Nikkei newspaper.TBs and LIs Nj basis at 31 March 2016

© 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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Mitsui to market US real estate & infrastructure funds in Japan

Giant trading firm Mitsui & Co is to enter a “strategic partnership” with Los Angeles-based CIM Group LLC that will see it “strongly supporting [the] marketing of CIM’s funds to the Japanese market through Japan Alternative Investment Co, a wholly-owned subsidiary, with an aim of raising several hundred billion yen of new capital from Japanese investors in the coming years”.  CIM focuses on real estate and infrastructure investment.

The arrangement will see Mitsui acquiring 20% of the US company and investing in several of its funds. Its total outlays are expected to be US$450-550 million. The full announcement is here.

The move follows Softbank’s acquisition of Fortress Investment Group of the US (see archive 15 February) and a number of reported moves by Mitsubishi Estate, the real estate arm of another giant trading conglomerate.

© 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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Postal institutions send proceeds from maturing JGBs abroad

The just published third quarter results of Japan Post Bank show its holdings of Japanese government bonds to account for only 35.3% of its portfolio, down from 37.7% at the close of the second quarter on 30 September and from 40.1% at the start of the year.

Keeping to a track apparent for some time, all of the drop during the term appears attributable to bonds which a long-ago official fiat dictated be held to maturity becoming due. The proceeds from this paper were then sent abroad into bonds and investment trusts (Please see tables at foot for details) .

A similar pattern prevails at Japan Post Insurance whose quarterly report was published at the same time.

Yet despite the clarity of the trend, the Nikkei and other commentators persist in using stock brokers’ reports of both institutions’ supposed “shedding” of JGBs to talk up the stock market. (A recent example is here.)

In yen terms Post Bank’s portfolio stood at 207,839.1 billion yen at 31 December, up almost 2% from 203,824.5bn yen three months before and up 1.4% from 204,876.6bn yen at the start of the year.

Post Insurance’s investment assets were 81,545.1bn yen, up 1.31% from 80,492.2bn yen at 30 September and 1.55% from 80,300.6bn yen at the start of the year.

Post Bank’s “held-to-maturity securities” were 42,842.9bn yen, 9.28% down from 47,223.2bn yen three months earlier and 17.69%% below the 52,052.5bn yen at 31 March.

At Post Insurance “held-to-maturity bonds” were 47,540.6bn yen, 4.45% down on the 49.752.9bn yen,at the start of the year.

Much has been said about how the two institutions will diversify but that will take time and, while their investments teams now include a significant component from Goldman Sachs, the learning curve is quite steep for both.

Until very recently a great deal of their customer’s money was simply grabbed by the Ministry of Finance’s Trust Fund Bureau which paid a set rate of interest on it via so-called zaito bonds while “investing” the money in public works through the Fiscal Investment and Loan Program.

What was left in postal portfolios could then be used by government to prop up whatever market it deemed needed propping at the time or otherwise directed into JGBs.

The maturity profile of the institutions’ government bond holdings is not made public but they seem to receiving about 15,000bn yen a year in proceeds from expiring debt.

Work to allocate this amount will be enough to forge their skills for the future without embarking on redistributions of their whole portfolios.

It is worth noting that Post Bank’s JGB holdings excluding those held to maturity make up just 15% of its assets.

Beware: the tables below are taken directly from Japan Post materials. Post Bank puts December 2016 figures on the left and quarter earlier numbers on the right. Post Insurance does the reverse.

© 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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