Banks’ securities investment portfolios contract by over 9%

Banks’ securities investment portfolios were worth 9.4% less at 31 March 2017 than a year earlier, according to figures from the Japanese Bankers Association. The drop follows a 6% decline in the 2015/16 year (see archive 2016/1o/10 Japanese banks’ securities portfolios shrank over 6% last year).

Holdings of government bonds fell during the term by 18.4% to reach 79,978.2 billion yen while investment in local government debt rose 9.6%.

Stocks rose only 3.8% — less than a third of the rise in the overall market during the year — to reach 24,767.3bn yen while falling 0.5% at city banks. At regional banks  they rose 11% to account for 8.66% of portfolios, up from 7.43% formerly. Text continues below table

The numbers come amid reports that the Financial Services Agency has been talking to the regional institutions about the risks they are taking on as they try to replace earnings from lending — for which there is little demand — with gains from investments, notably investment trusts.

 

 

 

 

 

 

 

 

© 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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Moves on pension obligations could spur corporate investment

The Financial Services Authority is looking to revise the accounting treatment of impairment losses from pension benefit obligations (PBO) and deferred tax assets, according to an article in the Nikkei. The FSA hopes to have the new requirements in place by the financial year ending 31 March 2020.

PBO have been the subject of much less focus in Japan than elsewhere but this is the second time in just a few days that they have made the news. An earlier report noted that listed companies’ obligations shrank in the financial year ended 31 March for the first time in eight years.

As long-term interest rates stabilized and businesses adjusted retirement policies in hopes of lightening the load, aggregate PBO at 3,672 companies stood at 92.62 trillion yen at 31 March 2017 down 1% on the year, data from annual securities reports shows.

Nippon Telegraph and Telephone and Hitachi each recorded declines of around 170 billion yen, while Panasonic saw a nearly 120 billion yen reduction.

Honda Motor, benefited from raising its retirement age as did NGK Insulators’ where the move accounted for around 1.8 billion yen of a 95 billion yen decline.

“Swelling pension obligations are one reason why Japanese companies have been hoarding money, so a reduced burden will serve as an opportunity for them to take such steps as investing or returning money to shareholders,” Mikiharu Noma, an associate professor at Hitotsubashi University, told the Nikkei.

© 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’ allocations steady, Post supossedly set for change

The assets of Japan’s giant life companies hit yet another record on 30 June, the end of the first quarter of the financial year, when they reached 377,700 billion yen, a 0.6% rise on three months earlier and 2.9% up year-on-year, figures from the Life Insurance Association of Japan show.

Asset allocation during the term was steady with only a few small shifts which appear readily attributable to market movements.      Text continues below table

The still partly government-owned Japan Post Insurance is an LIAJ member but allocates its assets differently, maintaining its bias to government bonds despite frequently recycled reports (such as here) that it is about to implement a shift into domestic stock and alternatives.

The new numbers suggest that no such change is imminent. Unlike the Government Pension Investment Fund, which brought about its own shift by putting the proceeds of maturing JGBs into stocks, Post Insurance appears to be directing any such receipts into foreign bonds.

The central bank also appears, for unknown reasons, to be resisting selling its government bond holdings to the Bank of Japan which the Japan Center for Economic Research forecast last November would run out of paper to purchase for monetary easing purposes about now.

Local stocks currently account for just 2.7% of Post Insurance’s securities portfolio. If that were to be increased to the 9.2% average seen at other life cos (see table) the impact on the stock market would be substantial – which makes the company’s frequent talking about the topic a little hard to understand since that could drive up prices before its buying begins.

© 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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Regional banks see difficult second half investment conditions

A survey of 11 regional banks conducted last month by Bloomberg found them “turning toward private equity, hedge funds and real estate in search of higher returns” with five favouring so-called alternatives and three foreign bonds.

Asset allocation will become more difficult in the second half of the financial year starting on 1 October according to six of those polled while seven see unfavorable investment conditions for domestic bonds of which they own 28.7 trillion yen.

The full story is here.

© 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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Banks & insurers built on sokanji business as powerful as ever

The mere 1% decline in the number of pension funds using the sokanji services of trust banks and life cos in the year ended 31 March shows just how resilient a business can be – even during decades of great change — when it has never been deregulated and is closed to newcomers.

The figures come from a recent survey by Nenkin Joho, the bi-weekly newsletter published by Rating and Information, the actuarial consultancy subsidiary of the Nikkei newspaper group.      

A Japanese company setting up a pension fund for its employees must by law appoint an ‘organiser’ to handle its administration. This appointment is, in effect, in perpetuity and sees the appointee getting all the customer’s custody business, and until recently all its fund management business as well.

Before the start of asset management liberalisation in 1995, Japanese pension fund investing was done via pooled accounts at trust banks and life cos – as it was prior to the 1975 ERISA legislation in the US where such arrangements are described as co-mingled.

Today much more money is invested under specialist mandates awarded to fund management firms (for the latest numbers see the posting immediately below)  although trust banks and life cos have also come to compete in this area either through their subsidiaries or in their own right.

Since the mid 1990s both the insurance and banking sectors have experienced waves of consolidation that have shrunk the number of players from which pension funds sponsors can make their choice, making the remaining few very powerful.

These giants have proved adept at adding to their roles that of fierce gatekeepers on access to pension funds which in Japan are staffed by non-specialist personnel rotated into their posts for a few years before being moved on. Some asset management firms have thus found it cheaper to market their services through sokanji than by talking with customers directly.

While the table below shows insurance companies as having more clients than the trust banks this is a function of small firms being required by law to sign up with insurers while the larger businesses must opt for trust banks.

© 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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Pooled accounts business shrinks again as segregated grows

Most of the trust banks and life insurance cos managing money for pension funds in pooled accounts saw that business shrink in the year ending 31 March although both Mizuho Trust & Banking and Meiji Yasuda Life saw gains as did the very much smaller Fukoku Mutual Life and Mitsui Life.

Overall, assets under management in the segment fell by 4.8% to 70,684.6 billion yen, figures from industry newsletter Nenkin Joho show.

This is the second year in a row that the business has contracted, even while pension scheme amounts  awarded to asset managers under segregated mandates have grown, as recent numbers from the Japan Investment Advisors Association reveal.

For the several years preceding the turn of the decade the amounts in pooled and segregated accounts were roughly even and the reason for the shift is not entirely clear.

What seems likely is that the money which companies handed from their workers’ Employee Pension Insurance (daiko) pots, beginning in 2002, for management by the Government Pension Investment Fund, came out of pooled accounts which GPIF does not use and was therefore reinvested under segregated mandates.

Whatever the cause the balance now seems to have moved decisively in favour of segregated which now holds 1.83 yen for every 1 yen in pooled compared with 1.14 in 2012.

© 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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Asset Management One leads pensions-business league

With 24.1 trillion yen in mandates from company and public-sector retirement schemes, newly formed Asset Management One became the country’s top manager of segregated Japanese pensions mandates in the year ending 31 March, figures from the Japan Investment Management Association show.

The company is well ahead of second-ranked Sumitomo Mitsui Trust Bank, last year’s leader, at 22.1tr but if the 1.7tr yen managed by Nikko Asset Management, a sister company in the Sumitimo Mitsui Financial Group (SMFG) and ranked 11th, were taken into account the gap would be much narrower.

BlackRock Japan stayed in third place this time around even as its pensions business grew by a hefty 2.6bn yen — the biggest jump in yen terms of any of the 115 firms in the field. Years ago the league leader, the US giant used to battle for top spot with DIAM, a joint venture between the former Industrial Bank of Japan and Dai-Ichi Life Insurance.

DIAM is now part of Asset Management One which was formed on 1 October when it joined forces with Mizuho Asset Management, Shinko Asset Management and the funds management business of Mizuho Trust & Banking. The data which member firms submit to the JIAA do not speak to why some pension assets are still being reported as in the hands of Mizuho Trust & Banking and this may be temporary.

Mergers have long played a role in bumping firms up the league table with BlackRock hitting the number one spot after it acquired former premier player Barclays Global Investors which itself achieved the top rung by buying the former Wells Fargo Nikko.                                                                                                       Text continues below table

Among those putting on unexpected spurts this time round were HSBC Global Asset Management (Japan), which after many years with one mandate now has four worth 44.9bn yen, and Alternative Investment Capital. This private equity specialist went during the term from having a pensions business too small to show in a billions-based table, to 10 mandates worth 300.3bn yen. It is 51% owned by Mitsubishi Corp, 25% by Daido Life, 4% by Mitsubishi UFJ Trust & Banking and 20% by Sumitomo Mitsui Banking Corp, a member of the increasingly ubiquitous SMFG.

Manulife, meanwhile, has sustained the blistering pace it picked up in the year ending 31 March 2013, after serving a relatively short apprenticeship begun in 2009, by adding mandates worth a further 300+ bn yen, making it the fourth fastest growing firm in yen terms.

The top five of the fifty firms managing public-sector pensions are the same as the overall leaders, which is not surprising given the very large size of some of the mandates from these customers, but the two compilations diverge more lower down.

The ranking of the firms 114 asset managers which have private sector pensions business both longer but livelier with many moving in and out of position, a few leaving all together and a few entering each year.

Foreign firms continue to hold their own accounting for half the top 20 in the overall listing.

© 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, 19

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MS&AD follows Nippon, Dai-ichi and Sony life cos into Australia

MS&AD Insurance Group Holdings is to pay 44 billion yen to acquire 6.3% of Australia’s Challenger Ltd, a provider of retirement-focused insurance and asset management services and a leading player in the country’s superannuation sector.

The development follows Nippon Life’s move in October last year to acquire 80% of MLC Ltd, the country’s fourth largest life co, from National Australia Bank, and Dai-ichi Life Insurance’s 2010 100% purchase of Tower Australia Group. The much smaller Sony Life is currently doing due diligence on advice and insurance firm ClearView Wealth.

Sumitomo Mitsui Banking Corp, the parent of Nikko Asset Management which already has a presence Down Under, is also planning to “have a serious go at the Australian pensions market” by offering its own products and services, deputy president Yasuyuki Kawasaki told the Nikkei last week.

Meanwhile Mitsubishi UFJ Trust & Banking, the asset management arm of Japan’s biggest banking group, told Reuters last month that it is ready to spend up to 1 trillion yen to acquire global fund management firms, but mostly from North America and Europe, with the aim of doubling client assets its stewardship.

Nippon Life is the country’s largest wholly privately owned life insurer as the government still holds a significant stake in the larger Japan Post Insurance.

Like Japan’s other giant financial groups MS&AD Insurance Group is the product of repeated rounds of consolidation in both banking and insurance industries since the early 199os (see Japan’s shrinking insurance sector in the “Reference points” box at right). Its Mitsui Sumitomo Primary Life Insurance already has a business tie-up with Challenger.

© 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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Postal institutions keep asset allocation steady in Q1 2017/18

The asset allocations in the portfolios both Japan Post Insurance and Japan Post Bank barely budged in April-June their reports for the first quarter of the 2017/18 financial year show.

At Post Insurance over half the portfolio remained in Japanese Government Bonds (compared with 32.2% at Post Bank) while ‘risk assets’ (domestic and foreign securities plus foreign bonds) rose by 1% to 10.9%.

At Post Bank the most significant move was the rise in ‘due from banks’ to 26.6% from 24.7%.

Assets at the insurer rose 1.7% in the term and at the bank 0.17.

Beware: the material below is take directly from that published by the two institutions but while Insurance puts the new quarter’s numbers on the right they appear on the left in Bank‘s report.

© 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 asset allocation: so far so good, what next?

The Government Pension Investment Fund has published both its investment results for the first quarter of the 2017-18 financial year, showing a 3.54% gain in the term, and the full version of its 2016-17 annual report. 

The small shifts in the Fund’s asset allocation during the three months to 30 June resulted from price movements in securities and foreign exchange markets which, in turn, nudged the proportions of the portfolio for which each accounts,  rather from than any alterations to GPIF’s policy which was last reset in October 2014.

The impact of that change on the roster of asset management firms holding Fund mandates can be clearly seen from the first two tables under ‘The Giants’ tab atop this page:  “GPIF investments by asset type & managers 31 March 2013-16” which has just been joined by “GPIF investments  by asset type & managers 31 March 2017”.

As the table alongside shows some of the portfolio realignment came from the steady shrinkage in holdings of FILP bonds which was introduced as part of the 2002 arrangement under which Nenpuku became GPIF and got much more money to manage.  As FILP debt matured the proceeds were allocated to other areas of the portfolio.

With returns improving — and domestic bond holdings now down to the 30% conventional wisdom says a pension fund should hold to meet benefits obligations — the re-allocation exercise has produced measurable benefits and set the scene for what could be bolder changes in future.

The Fund has been seeking information from asset managers about their capabilities in new strategies and seems set to implement some of these as its domestic equities and other mandates expire over the next two years.

More adventurous choices of benchmark could, for example, help it capture some of the gains in local small caps, which have recently been attracting attention, as could a slight shift into ‘alternatives’

In making its future manager selections GPIF will no doubt look at the performance firms have achieved for it in the past.

This is set out beginning on page 78 of the 100-page Japanese-language version of its annual report but is not included in the 40-page English-language version. Neither is the list showing which firms manage what asset types but that now appears in translation under “The Giants’ tab above.

Missing in either language are:

  • An explanation of why GPIF’s assets at the close of the 2016/17 financial year are greater than the sum of those at the start plus its reported rate of return,
  • Any mention of its liabilities over years to come, and
  • Figures for the maturities of its holdings of Japan Government Bonds

Until the close of the 2014/5 year, the Ministry of Health, Labor & Welfare made annual drawdowns from GPIF’s trove to meet its bills for the payment two types of pension.

This now seems to have gone into reverse with more of what is collected from the public to pay benefits due under the national basic pension and Employee Pension Insurance being invested by GPIF and government paying more of the former directly from taxation.

Neither GPIF nor the Ministry has produced credible figures showing the track on which pension obligations will rise or fall in coming years.

During the heated debate on its future in 2014 the Fund said that in about 10 years time (see graph along side also archive November 2014 Investing pensions: Plus ça change, plus c’est la même chose) it would enter a period in which contributions outweighed benefits before the position reversed itself some years later to what has become the norm. But it  produced no evidence for this assertion which the demographic data do not support.

Figures for the maturities of its holdings of Japan Government Bonds would help asset managers trying to understand GPIF how much is likely to reallocate to other investment in each year.

© 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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