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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Kato follows Shiozaki as new pensions new supervisor

Katsunobu Kato

In a cabinet reshuffle Katsunobu Kato  replaced Yasuhisa Shiozaki as Minister of Health, Labor and Welfare, the department which oversees Japan’s corporate pension funds as well as the Government Pension Investment Fund and Serama.

There have been no explanations of Mr Shiozaki’s exit just hints here and there that, at a time when allegations of nepotism have been making the government unpopular, it was time for ministers seen as close to Prime Minister Abe to go. However, as the Financial Time notes, Mr Kato is also seen as close to Mr Abe.

A former Ministry of Finance official, Mr Kato is affiliated with the revisionist  Nippon Kaigi.

Just under two years in the post, former Bank of Japan man Mr Shiozaki (pictured at right) was once spoken of as a future leader and had interesting views on cross getting rid of cross shareholdings (see archive 2014-9-5).

Regional Revitalisation Minister Kozo Yamamoto has also been shown the door —  not the first  ‘architect of Abenomics’ to go that way and suggesting that this is almost as dangerous a sobriquet as ‘future Prime Minster’.

Earlier this week the International Monetary Fund described the principal targets of Abenomics as “out of reach” and inflation as “stubbornly low” despite the best efforts of the Bank of Japan.

© 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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Sumitomo and others trading houses launch US property funds

It has been a very long time coming but the logic of Japan’s giant trading houses using their knowledge of overseas property markets to create packages in which institutions at home can invest for income and/or capital appreciation has finally borne fruit according to an article in the Nikkei.  

Sumitomo Corp, Mitsubishi Corp and Mitsui & Co have entered, or are entering, the field by offering investment in US real estate assets to Japanese pension funds and others.

Simply by conducting their day-to-day business these conglomerates have accumulated vast knowledge of the world’s requirement for silos, warehouses and other trading infrastructure – often seeing the early signals of demand before of others do.

Meanwhile on the home front, building and managing large real estate projects has become a staple activity and the companies have been transferring this expertise abroad.

Yet they may now need to move with caution if they are to continue securing worthwhile properties in markets where prolonged low interest rates mean prices for all types of asset are looking toppy.

A complex business

Stakes in property packages offer a buyer the opportunity for both income and capital appreciation on the assets held in real estate investment trusts (REITS) — vehicles which enjoy widespread recognition among investors even if their details differ.

By contrast the nature of infrastructure projects means that while they provide only income, which is often guaranteed at some base level by governments, as the asset reverts to public ownership at the end of a fixed period. Moreover the nature of the initial structures may rule out their all being eligible for the same type of tax treatment or the same tax advantage as REITs. Putting together packages of these undertakings is thus a complex task which may require new structures and, if they are to be liquid, new trading platforms (see archive 2011-11-19  Mitsubishi Corp to build infrastructure debt platform in US).

Japan’s dire demographics and its pension funds’ need for income may yet prove sufficient incentive for this to happen. Most of the country’s job-based retirement schemes have passed the tipping point at which they begin to have, in perpetuity, more going out in benefits each month than they have coming in as contributions.

For the trading companies, redirecting inhouse expertise and buying in any missing skill sets (see archive 2011-10-31 Mitsubishi gears up pension product power) makes more sense than ever — now that their commodities businesses are no longer flying as unsustainably high as they once were.

The Rockefeller débâcle

The distortions which have arisen in the Japanese banking sector over the past two decades (see ‘Reference points’ in column at right, Japan’s Consolidating Banking System) and the lack of demand for credit from the country’s many cashed up companies, mean that financial institutions have had to find other ways to make money and one result has been their very large presence in the aircraft leasing business.

These assets too could be packaged and sold on to outside institutions but this is unlikely as the banks would then have to find other holdings which earn as much.

With life cos, pension funds, banks and cash-rich companies all looking for the same thing, demand for quality income-generating assets is mounting and supply is finding it hard to keep up. The danger along the way is another Rockefeller Centre débâcle

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© 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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Orix’s Robeco appoints Shiro Tsubota as president for Japan

Robeco has announced the appointment of Shiro Tsubota as president and representative director of its Japan operations with immediate effect. He will report to Graham Elliot, managing director and head of Asia-Pacific distribution based in Hong Kong.

Mr Tsubota previously served five years as chief executive officer of Henderson Global Investors Japan before which he was Pimco’s head of operations for the Asia-Pacific region having previously held senior positions at Deutsche Asset Management and Goldman Sachs Asset Management. He succeeds Kikuo Kuroiwa who is leaving for health reasons.

In May this year the Anglo-Australian Henderson Global Investors merged with US company Janus Capital into form Janus Henderson Investors. In July 2013 Japan’s Orix Corp, known mainly as a leasing giant, completed the acquisition of 90.01% of Robeco’s equity from Rabobank of the Netherlands which retains the minority stake.

© 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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Sumitomo Mitsui Trust: sokanji, stewardship and restructuring

Sumitomo Mitsui Trust Holdings plans to combine the asset management operations of Sumitomo Mitsui Trust Bank and Sumitomo Mitsui Trust Asset Management Co during the financial year beginning 31 March 2018, according to an announcement from the company issued at the same time as its Q1 FY2017 results.

The first stage in the restructuring, due to begin tomorrow 1 August 2017, will be to separate Sumitomo Mitsui Trust Bank’s asset management operations from its other businesses.

The Bank is one of the few institutions authorized to act as sokanji to company pension funds. All corporate retirement schemes are obliged by law to have such an advisor which as a matter of course gets all its custody and administrative work — and until 1995 all its asset management business too.

Pension sponsors rarely, if ever, change their sokanji which have become powerful gatekeepers on access to them and still manage in pooled accounts about the same amounts for them that fund managers do under segregated mandates.

By contrast the relatively new Sumitomo Mitsui Trust Asset Management has been developing a business in fund wrap and index trust products and among defined-contribution pensions.

While Sumitomo Mitsui Trust Holdings has decided on the “basic policy for the split of asset management functions from Sumitomo Mitsui Trust Bank”  it has not revealed what that is.

SMTB has recently put much emphasis on good stewardship and transparency and on building walls between its businesses to prevent client information leaking from to another. So it will be interesting to see how it tackles the question of behind which wall its sokanji business should reside in the restructuring.

Perhaps it will simply declare that that custody and administration are part of asset management, leaving it and its trust bank competitors free to carry on as usual in a business which has never been opened up to competition even as the number of authorised players has shrunk thanks to repeated rounds of bank consolidation.

One practical move which Sumitomo Mitsui Trust Holdings — Mitsui Sumitomo  Trust Holdings in Japanese – might want to consider meanwhile is harmonising its Japanese and English names and those of its subsidiaries. It has also recently become fond of the contraction SuMiTrust and as MiSuTrust sounds like soup it should most probably opt for the former throughout.

© 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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Infrastructure: the definitions and the public interest questions

An article in I&PE Real Estate asks what characteristics will come to define ‘infrastructure’ investment given the shortage of assets for the class and the granting in April by the New South Wales state government of a 35-year lease to operate its land titles registry to a consortium including First State Super and Hastings Funds Management for AUD2.6 billion (US$2.1bn).

The video segment of an article in the Sydney Morning Herald questioning the deal, from another perspective, is also worth attention.

Should a service which the public is obliged by law to use and pay for (and in the NSW case already works efficiently) be run for private gain?

© 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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Chikyoren awards overseas real estate, infrastucture mandates

The 23 trillion yen Pension Fund Association for Local Government Officials has awarded a mandate to manage overseas real estate investments to Invesco Asset Management and another to manage overseas infrastructure investments to Tokio Marine Asset Management according to a brief announcement from the body which is known as Chikyoren.

The Association operates as a mutual aid association and like its peers has agreed to follow similar asset allocation guidelines to those of the Government Pension Investment Fund which is also moving a smallpart of its portfolio into alternatives.

For more detail, currently being updated, on Chikyoren see under ‘The Giants’ tab atop this page. For a full profile see archive 2012- 11-8 and/or use the search box to track the many stories which have appeared about the fund on this site.

© 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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Alternatives and smart beta gaining ground say consultants

Pension funds continue to hold more in alternatives than do other types of investor and last year accounted for a third of the US$1,330.8 billion of such investments under external management, according to Willis Towers Watson’s annual study of the business.

In 2015 retirement schemes accounted for 34% of the total of US$1,240.9bn and in 2014 for 33% of US$1,138.7bn.

In both those prior years Macquarie Group’s Direct Infrastructure Funds put the Australian institution atop the league table of alternatives houses by assets under management.

In 2016, however, Macquarie came in fifth with US$96.2bn — overhauled by Bridgewater Associates’ Direct Hedge Funds with US$116.8bn, TH Real Estate with US$105.5bn and Blackstone Real Estate Strategies with US$ 101.9bn.

Not a single Japanese institution appears in the top 100 alternatives managers and not many of the foreign firms which do feature have offices in Tokyo  — the capital of a country with the world’s second largest pool of defined-benefit pensions savings.

Meanwhile FTSE Russell’s fourth annual survey of institutional asset owners’ use of smart beta (defined as an investment strategy  based on an index that is not traditionally market cap–weighted) found that 46% of 200  hundred respondents spread around the globe were deploying this approach and noted that:

“We expect growth in smart beta to continue at a robust pace, as the adoption expectations of asset owners who are currently evaluating initial or additional smart beta allocations remains strong and satisfaction with smart beta among current users remains high. In particular, we see strong growth prospects in the usage of multifactor combination strategies and the application of ESG considerations to smart beta.”

Unfortunately the only pension funds covered by the research were those associated with universities or industry-wide multi-company plans.

© 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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