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.
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.
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.
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.
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.
The number of mandates in issue has also fallen both from its historical highs and compared with the early days of deregulation.
Management fees seem to hsve stabilised around 0.30%
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