Great yield hunt bags CLOs, foreign property and drugs stocks

As the world and the Wall Street Journal continue to give way too much significance to Japan ‘overtaking’ China as the largest foreign holder of US treasuries, Japanese institutional investors and asset management intermediaries are adding other yield-producing items to their menus.

Collateralized loan obligations

Bloomberg reports in, American-Made Junk CLOs Now Being Served in Yield-Starved Japan, that

“To make it easier for Japanese investors to get to this U.S. debt, bankers have repackaged a dollar-denominated collateralized loan obligation into yen-denominated bonds, using derivatives to hedge out risk related to currency fluctuations.

“The Repackaged CLO Series GG-A1 Ltd, for example, consists of a special-purpose entity that will issue Japanese yen-denominated notes and is backed by the U.S. dollar-denominated notes” issued by Kitty Hawk CLO 2015-1 LLC, according to a Standard & Poor’s March 24 pre-sale report.

“Essentially, it transforms $249 million worth of a $331 million U.S. CLO managed by Guggenheim Partners Investment Management into highly-rated Japanese-yen denominated bonds, according to an April 15 Moody’s Investors Service report.

“The transaction was arranged by Mitsubishi UFJ Financial Group Inc, which is also the counterparty on the currency swap that mitigates the risk of losses from changes in the yen-dollar exchange rate”.

Real estate funds

Meanwhile the Japan Times/Bloomberg report, in Bubble-era missteps shape Tokio Marine property strategy that the insurer, one of Japan’s oldest, wants to:

“Increase overseas property assets by about 10 billion yen this years, and to raise that amount to 100bn yen ‘in several years’…Tokio Marine Property has already invested in property funds in the UK, Europe and Australia.”

The article notes further that “Japanese pension funds are tipped to lead the charge in term of overseas real estate investment as they seek to boost returns to meet payouts in one of the fastest aging nations”.

It is not clear whether this is intended to mean that retirement schemes will invest in physical property or real estate funds.

US treasuries again

The Financial Times cautions that Global property bubble fears mount as prices and yields spike and Wall Street Journal blogger Bylan Talley put his colleagues’ reporting into a sensible context in Did Japan Really Overtake China as the biggest foreign holder of US Treasury debt: A deeper look at the math. Unfortunately they appear not have read it.

Meanwhile the dash into drug makers stocks because they pay higher dividends than most other appears to have paused for breath.

© 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 to bring more asset management in house, set up register

The Government Pension Investment Fund will this year begin to ‘balance’ its passive investments with actively managed holdings, according a report in the Nikkei which gives no source for the information.

The move is said to be part of the revamp of GPIF’s portfolio now underway which will see the Fund reducing its allocation to Japan Government Bonds and increasing those to domestic and foreign equities.

At the same time GPIF will streamline its management processes by establishing a register of firms who wish to do business with it and reviewing the performance of incumbent managers as often as once or twice a year. It also plans to do more in house and to double its staff to 150 within five years.

In the year ending 31 March 2014, according to the Nikkei, GPIF  paid external managers 25.3 billion yen.

For the details of who now manages what for GPIF see tables under “The Giants” 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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Company pensions see second year of double-digit returns

Defined-benefit corporate pensions enjoyed their second successive year of high investment returns in the 12 months to 31 March 2014, according to the latest annual rankings by plan assets by Nenkin Joho. The fortnightly newsletter’s numbers show many schemes enjoying yields in double figures and some surpassing 20%.TOP 20 DB penion funds nj basis

Nomura Research Institute led the field in growth terms with a return of 35.87% on 81,123 million yen of holdings. NRI has 4,000+ employees and includes advice to asset managers in its suite of products. By contrast Tokio Marine Nichido Life Insurance, with over 12,000 workers, saw the value of its portfolio drop 2.2% to 181,32mn yen.

In an era of continuing deflation, and before the current run-up in equities on the back of government buying, the overall results speak to the deployment of excellent asset management skills. And they are just what sponsoring companies need now that demographics mean most schemes’ annual benefits payments will exceed will their yearly contributions income for as far as the eye can see.

Nenkin Joho is published by Rating & Investment, the actuarial consulting subsidiary of the Nikkei newspaper. The weakness of its annual rankings is that it has to rely on funds being prepared to fill out and return its questionnaire.

This year responses were received from 320 of the 15,000+ ‘fund-’ and ‘covenant-type’ defined-benefit schemes then existence and from 117 of 527 of the ‘Employee Pension Funds’ (EPFs).

Fortunately some funds are repeat responders and so comparisons are possible.

Unfortunately Hitachi Ltd seems not to have responded to the latest round of data gathering leading to the omission of what has since 2004 been by far the country’s biggest company retirement scheme. The number one slot had previously been taken by the National Credit Union [Zenkoku Shinyo Kumiai] the multi-company plan for bank employees which several institutions later left.

At 31 March 2013 Hitachi Ltd had assets of 812,924 million yen – well ahead of current number one Toyota Motor Corp’s 645,660mn yen — and a very rapid growth rate thanks to good investment returns and the schemes of many former subsidiaries’ being brought under its wing as a consequence of the sprawling group’s corporate restructuring.

Conversely the multi-company National Electronic Machinery Industry fund responded this year for the first time since 2011.

Just beyond the top 20 shown in the table are Yamazaki Baking which returned 15.91% — following 16.22% the year before — on assets of 113,630mn yen, and Pfizer Japan with 15.68% — after 2013’s 16.22% — on assets of 111,488mn yen.

© 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 adds to private equity and real assets capabilities

The Government Pension Investment Fund is looking for trustees/administrators to act as guardians of its investment in such assets as private equity, infrastructure and real estate.  Candidate firms will need to possess a Japanese trust banking licence. Application forms are here.

© 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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Nikkei newspaper wakes up Government’s role in stock market

In a refreshing bout of realism the Nikkei is nudging it readers towards recognising the Japanese Government’s huge role in the Tokyo stock market and its very considerable pricing power.

In Public funds playing key role in propping up market the paper reports that “Public pension funds and the Bank of Japan bought a record 5 trillion yen (US$41.1 billion) in stocks in net terms in fiscal [year] 2014″ and moves on to note that “Japan Post Insurance is expanding its stock investment as well”. Indeed it is — but so too is the far larger Japan Post Bank (see archive 5 January 2015  Post Bank clout can support Tokyo stocks for years to come) which it does not  mention.

The article also takes in the “price-keeping operations” of the early 1990s and notes that the amount spent on stocks last year by GPIF alone for exceeded even those outlays.

For fuller facts see archive 25 March 2015 State actors’ standing in Tokyo stock market looms ever larger.

© 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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Three firms awarded GPIF transition management mandates

BlackRock, Nomura and Russell have been awarded transition management mandates by the Government Pension Investment Fund.

Contracts to handle domestic equities have been received by  Nomura Asset Management and by BlackRock Japan Co Ltd (with BlackRock Asset Management North Asia as “subcontractor” —  i.e. actually doing the work). The same BlackRock combination has also been awarded an international bonds transition mandate while one  for international equities has gone to Russell Investment Japan (with Russell Implementation Services Inc as subcontractor).

GPIF’s announcement of the awards notes that it has also “appointed backup managers” but does not say who these are.

© 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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Life cos’ assets up 2% in Q3, portfolio composition steady

Investment assets at Japan’s 43 life insurance companies rose in the October-December 2014 quarter by 2.09% to reach 366.070 billion yen while the overall disposition of portfolios remained roughly the same with government bonds accounting for 40.7%, or 44.5% when local government bonds are included.

The numbers come from the Life Insurance Association of Japan and show that the greatest growth during the term was in holdings of call loans which jumped 16.97% quarter-on-quarter to make for a year-on-year change of 67.1% — still only enough to push the proportion of portfolios for which they account to 0.9%.

The closely watched ‘foreign securities’ component rose by 7.11% – insufficient to offset the 9.3% decline in the value of the currency against the US dollar during the period.

Story continues below table.

LIAJ nos at 31 Dec 2014The sector is dominated by a handful of big domestic participants with Japan Post Insurance as the behemoth followed in asset terms by Nippon Life. However this month saw Dai-Ichi Life, the first firm to go public, overtake Nippon in terms of premium income. The other big players nestle within the MS&AD Financial Group,  NKSJ Holdings and Tokio Marine Holdings.

Having now exited years of restructuring, which began with the collapse of Nissan Life in April 1997, the firms are in robust health and bent on expanding abroad through acquisition to compensate for declining domestic demand as the country’s population falls.

See Japan’s shrinking insurance sector in the ‘Reference points’ section to the right for details of how today’s giant conglomerates came about and the units of which they are composed.

© 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 investment advisory committee sticks up for principles

The investment advisory committee of the Government Pension Investment Fund, the world’s largest institutional investor, stormed the moral high ground yesterday when it issued a statement of the principles governing investment of its 137 trillion yen hoard. Then came a lengthier description of those principles as well as a stewardship code.

The documents are here in Japanese and here in English.

The days of the investment committee its current form may be numbered but in spelling out so coherent a philosophy it has set  benchmark that any successor body will have to more than than meet.

The first principle states:

“Our overarching goal should be to achieve the investment returns required for the public pension system with minimal risks, solely for the benefit of pension recipients from a long-term perspective, thereby contributing to the stability of the system.”

The “should” and the “solely” are interesting. The first implies that what is described is an ideal state (otherwise it would say “is to achieve”) and the second rules out from that ideal state the pursuit of policies on the grounds of national interest.

This seems to override the argument, often hinted at by Prof Takatoshi Ito, that GPIF should invest to further national economic growth because without that growth no pensions could be paid. The talkative Prof Ito chaired the government-appointed Panel for Sophisticating the Management of Public/Quasi-public Funds when he was dean of Tokyo University’s Graduate School of Public Policy. He is now at Columbia University Columbia University’s School of International and Public Affairs.

The second of the Fund’s principles gives its “primary investment strategy” as “diversification by asset class, region, and timeframe” with the “description” noting that overseas investment can provide the benefits of growth beyond Japan, even though it involves foreign exchange risks.

Prof Ito’s panel proposed replacing what it aooeared to see as one-man rule by GPIF president Takahiro Mitani with an investment board made up of those with expertise in the field.

In what way this differs from the Fund’s investment committee has  never be wholly clear though there was some implication that the new body would have more, formal authority.

Appointments to the committee are typically for two years though when the current line-up was announced in April 2014 there were suggestions that it might sit for only 12 months given the ongoing discussions about the Fund’s future.

For the current composition see archive 22 April 2914 Government Pension Investment Fund’s new investment panel.

© 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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State actors’ standing in Tokyo stock market looms ever larger

In an burst of either welcome frankness or astonishing naivete the Nikkei today confirmed that the Japanese government is once again engaged in stock market price-keeping operations — this time via the country’s central bank.

The Bank of Japan, the Nikkei notes, “… frequently steps into the market and buys 30 billion yen to 40 billion yen worth of stocks when equity prices falter in the morning. Its purchases Tuesday [24 March] reached 35.2 billion yen, underpinning a market that showed signs of a morning struggle. The bank has carried out 20 such operations so far this year.”

The Bank of Japan’s share portfolio now stands, according to the article, at around 10 trillion yen or about 2% of Tokyo Stock Exchange value. That makes it second only to the Government Pension Investment fund which at the end of December held domestic stocks then valued at 27.1tr yen.

This gives government agencies great market power even before the three giant public service pension funds start fulfilling their pledge to match GPIFs asset allocation and shifts what translates to 3.6tr yen into stocks.

Add in the portfolios of the state-owned Japan Post Bank and Japan Post Insurance and an already very considerable tally doubles to within reach of 10%.

If it looks like PKOs …

The Nikkei puts the BoJ purchases into the context of quantitative easing but to long-time markets watchers it is all too reminiscent of the so-called price keeping operations (or PKOs) of the early 1990s when pension funds were also the chosen vehicle.

That was before asset managers were allowed to handle corporate pensions business which had, rather, to be handed to trust banks or life cos which were dependent on government for their licences and did as they were told.

In this period company pension schemes held proportionately more of the market than GPIF because they still handled the investment of contributions to a supplementary government scheme known as the daiko — a job that subsequently passed to the Fund.

In a 2002 paper published by Columbia University’s Center on Japanese Economy and Business, Juni Narita reported that: “When the Nikkei Stock Average occasionally dropped below ¥17,000, a fear spread over the markets that the low level of stock prices would trigger off financial instability”.

Following the letter

Thus each time the market hit that level in the period from August 1992 to November 1993  the Japanese government “stimulated the trust banks and the other financial institutions … to buy more stocks.”

“The trust banks and the asset management companies* did buy stocks in the spot market …  However, at the same time, some of them hedged by selling stocks in the futures market on the expectation that stock prices would decline further. As a result of this, the prices of the futures market and the spot market synchronously crashed. PKO could not accomplish its purpose in the end”.

Presumably the government sees the Bank of Japan as a more reliable partner. So, it seems, do investors.

Junichi Makino of SMBC Nikko Securities is reported as telling the Nikkei that: “The BOJ’s role of providing support to the market is giving investors a sense of security”.

Confidence in intervention or in the market?

But having confidence that the government will intervene — which inevitably creates distortions —  is not the same as having confidence in the market.

Moreover the government, as embodied in Prime Minister Abe, and the Bank of Japan, in the shape of Governor Kuroda, seems increasingly to be two different things.

As the Japan Times told readers  on 22 March, the Abe-Kuroda ‘honeymoon’ risks being soured by fiscal friction partly because “[Any] delays in fiscal reform are … likely to leave the BoJ with a bloated balance sheet, already equal to over 60% of GDP, for longer than it wants.”

Meanwhile bringing change to GPIF  has not proved to be the pushover its critics thought and the planned replacement of its chief executive by an committee in about a year’s time will probably make it even more ornery from government’s point of view.

*Asset management companies at this time were largely subsidiaries of securities firms and managed ‘investment trusts’ — i.e. mutual funds.

© 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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Market movements alone make big shifts in pensions portfolios

For the first time since 2007 the close of the third financial quarter on 31 December saw segregated pension accounts at asset managers holding more money in domestic stocks, at 45,765.1 billion yen, than in Japanese bonds, at 39,641.0bn yen. The total was 222,042.1bn yen.

The numbers come from the returns which members of the Japan Investment Advisors’ Association (JIAA) file with it every quarter. They need to be read with caution and keeping several caveats in mind – especially in light of the boo boos reported in the posting below.

Retirement schemes dominated the 155,817.0bn yen of funds sourced from Japan with 82,056.6bn yen from public pensions, down 3.61% on the previous quarter, 28,212.4bn from corporate plans, up 4.14%, and the remaining 45,448.0bn yen from unspecified client types. By contrast of the 29,990.2bn yen from overseas clients only 2,542.4bn yen came from pension funds.

GPIF self-managed amounts excluded

After an initial breakdown by type of client, the JIAA disaggregates the grand total only by type of investment. It provides no breakdown by customer then by type of investment. However, it is likely that money sourced from abroad is invested only in Japanese markets.

Discerning trends is also complicated by the omission of funds which investors manage inhouse and thus the exclusion of 26 trillion yen in passively manage domestic bonds which the Government Pension Investment Fund 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.

So bearing all that in mind …

Japanese bonds held in segregated accounts fell during the quarter by 17.2% from 47,913.5bn yen to 39,641.0bn yen, a difference of 8,272,5bn yen. Japanese stocks rose by 10.27% from 41,503.4 to 45,765.1bn yen, a difference of 4,261,7bn yen but the Nikkei 225 stock index also rose by 10% in the period.

Much of the proceeds from bond sales will have been used to meet the massive monthly benefits bill which GPIF faces now that it has more going out than it has coming in through contributions. (The actual payments may have come from realizing bonds managed inhouse with that pool then topped up by transfers from externally managed funds.)

Away from the home front the biggest shift is into US bonds. Such holdings rose 11.48% to 20,578.8bn yen but 9% of that will have come from a contemporaneous decline in the value of the Japanese currency versus the American unit.

US stocks up on currency and prices

The same is true of investments in US equities which rose 19.05% to 17,216.2bn yen with valuations additionally benefitting from a rise in US stock market prices– as seen in a 7% jump in the Dow Jones Industrial Average.

Also noticeably up is investment in Japanese REITs which, after four consecutive quarters of decline, rose 10.2% to 3,527.9bn yen.

JIAA members asset allocation at 31-12-14The table alongside shows how asset allocation looked at 31 December 2014 and a year earlier

For the full disposition of portfolios see page 8 Assets Under Management by Country and Region in the December 2014 numbers here. Beware! These figures are in that much-loved Japanese unit hundreds of millions

For a breakdown of the asset management business by client type (domestic, foreign, pensions, other) see page 2 of the same document. The warning here is that the subtotals often do not make sense. This is because they include more that what is shown in the disaggregated details.

© 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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