Quelle non-surprise!

The Federation of National Public Service Personnel Mutual Aid Associations, known by its Japanese acronym KKR, will from October slash the weighting of Japanese bonds in its 7.6tr yen portfolio from 74% to 35%. It will also increase its allocation to domestic stocks from 8% to 25%, to foreign bonds from 2% to 15% and to foreign stocks from 8% to 25%.

The official announcement of these moves, which have long been trailed and are intended to put KKR’s allocations in line with those of the Government Pension Investment Fund (GPIF), gave no  timetable fo implementation.

The Pension Fund Association for Local Government Officials (Chikyoren) and the Promotion and Mutual Aid Corporation for the Private Schools of Japan are expected to announce similar changes, soon according to the Nikkei.

While all of this has long been forecast, not least on this blog, the realism shown by Goldman Sachs Masahiro Nishikawa in telling the Nikkei that the trio’s re-allocations will see buying timed to ‘support prices’ is welcome.’

GPIF was also in the news two days before the KKR announcement when the Japanese cabinet delayed making decisions on a revamp of its governance. This was most likely due to the knock-on effects of  disruptions to the government’s parliamentary calendar (see ‘On the [Koya] Nishikawa’ resignation at shisaku.com).

© 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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Spending on foreign acquisitions reaches a record 8.9tr yen

Japanese companies bought a record 557 foreign firms last year spending 5.77 trillion yen to do so, according to the Nikkei citing mergers and acquisitions advisor Recof Corp. In 2013 they bought 499 for 5.27tr yen.

At home too the M&A business was brisk with 8.9tr yen spent to  acquire 2,285 companies.

The news came on the same day that Japan Post Group announced it would acquire Australian logistics concern Toll Holdings for an estimated 600bn yen and freight carrier Kintetsu Express said it would buy Singapore’s APL logistics for 144bn yen.

The trend in foreign takeovers has continued despite the declining yen and reflects the need to grow elsewhere given the upcoming shrinkage in the home market as the population declines.

Life insurance companies have been amongst the keenest acquirers and this trend too is set to continue according to the current issue of the Asia Insurance Review.

© 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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Post Bank to move into equities, beefs up asset management

Under the headline ‘Japan Post seeking big payouts via risky investments’ today’s Nikkei reported that this unit of the soon-to-quoted Japan Post Group will ‘as early as the summer’ set up a department ‘devoted to managing risk assets.  It will externally recruit dozens of specialists, just as the Government Pension Investment Fund did. An official announcement will be made Wednesday.

The Bank’s move out of government bonds and into equities has long been forecast on ijapicap.

© 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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World pension assets continue to climb – new thinking needed

The defined-benefit pension assets of the top six nations with this type of retirement scheme rose 7.15% to US$17.5 trillion in 2014, the latest edition of Towers Watson’s annual study reports.

Defined benefit pension assets by countryWith DB pension reserves of US$9,289 billion the United States has by far the biggest pool of such savings and the assets of the country’s defined-contribution plans are becoming almost as great.

The US’ weight in calculations of global pensions pools has led to reports of a worldwide shift to DC yet the trend is seen almost solely in America. In Australia, where  85% of assets are invested through such vehicles, the present-day superannuation scheme is predicated on this type of fund.

The United Kingdom and Japan have historically run very close for second position in the US dollar-based ranking, changing places in line with shifts in their currencies relative to the American unit.

Last year Japan fell into third place when its pension assets fell 11.46% in US dollar terms while its currency declined by 14.3%.

The Towers Watson study can be downloaded in full here.

Back to first principles and into the future

As welcome as the research is, it is misleading to compare DB and DC plans since the deceptively named ‘defined contribution’ schemes are not pension plans at all but rather provident or savings schemes which a smart American mutual funds salesman discovered could bring tax benefits under section 401(k) of the US internal revenue code. They were not designed to provide security in retirement and do not so so.

Retirement security now needs some blue sky thinking which starts by defining the purpose and goes from there. New structures need not be based on employers and governments might benefit from offering a form of guarantee which is then re-insured in the market place.

© 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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Common sense breaks out among Tokyo stocks commentators

When the Nikkei reported yesterday that two ‘whales’ are making ‘big splashes’ in the Tokyo stock market, it ended its story by quoting Masataka Kurita of Okasan Securities: ‘This goes to show how thin the market is, with the absence of a broad range of buyers’.

It is not clear whether the next words are those of Mr Kurita or the article’s author Takeshi Kawasaki. They are: ‘Investors can only hope this lack of depth doesn’t discourage more people from jumping into the market’.

The ‘whales’ of the piece are the Government Pension Investment Fund and Japan Post Insurance which have followed government’s encouragement for them to increase their stock holdings.

ijapicap has led the field in highlighting the extent to which the two, plus Japan Post Bank, would acquire stocks noting, after government pressed a 25% equities allocation on GPIF, that the postal pair would probably move in line with the commercial institutions in their respective sectors.

Taken together the trio look like holding shares worth 62.22tr yen at current prices. Add to that the amounts being pushed into the market by revised asset allocation guidelines at the giant civil service pension funds and  the Japanese state will control as significant a slice of markets as it did in the years to the mid-1990s. At that time corporate pensions could only be managed in pooled accounts by trust banks and life insurers which depended, then as now, on government for their licences and so moved to support whatever prices it wanted supported.

Moreover, once the trio’s new allocations are met it will be politically difficult for their portfolios to be re-balanced, even when asset price fluctuations indicate that they should be.

Later on 11 February Mia Tahara-Stubbs, senior writer for CNBC.com quoted Shun Maruyama, chief Japan equity strategist at BNP Paribas, as saying: ‘Shorting the Nikkei [stock index]  can be risky because the government  pension fund and the Bank of Japan are effectively providing a floor to prices. … It’s a very dangerous strategy for hedge funds.’

The same article quotes from a note to clients from Société Genérale Asia’s equity strategist Vivek Misra dated two days earlier in which he says simply  ‘[It’s] the end of the honeymoon for Abenomics.’

© 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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Piketty looks at Nippon and suggests it might be different

For of a video of the Nikkei’s 2 February 2015 interview with Thomas Piketty, author of Capital in the Twenty-First Century, on Japan’s economy and the need ‘to increase the number of babies’ go here.

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GPIF awards mandates, seeks to improve public relations

The Government Investment Fund this week announced the award of four active investment mandates and advertised for it first-even public relations officer.

Schroder Investment Management (Japan), which has long had an office in Tokyo, received a mandate to actively manage Japanese equities as did Daiwa SB Investments and Nomura Asset Management. No amounts were given but the last two are rejoining or simply staying on the Fund’s roster in the same mandate category.

SB was managing 163.3 million yen until the 2013/14 year while the business handed to Nomura appears to be a renewal of at least part of the 527.5mn yen already under its stewardship in this way. (For the full, and, details of who has handled what business for GPIF in the five most recent financial years see under “The giants” tab atop this blog.)

UBS Global Asset Management (Japan) Ltd received a mandate to actively manage international stocks via its subsidiary UBS Global Asset Management (UK).

The qualifications for the job as the Fund’s public relations officer are here (sixth item down) or available from sai-youattogpif@go.jp. Worryingly they do not include experience in finance though “consideration of such factors as content and duration of experience in the private sector” will be taken into account on the salary front. No linguistic capabilities are listed.

If the Fund’s appointment of a PR heralds an era in which it becomes more transparent and ready to answer questions initiated by the press and public rather than simply issue statements, it will be warmly welcomed. If the new staffer is used to further obfuscate the issues it will not.

On 4 February the US publication Pensions & Investments reported that GPIF has “converted” its research department into an investment strategy department and appointed Atsushi Ikai its “director-general”* with Tokihiko Shimizu, the former research department head, returning to  the Ministry of Health Labour & Welfare whose responsibilities currently include GPIF.

This report has yet to be confirmed or denied by the Fund.

* Heading the investment strategy unit of the world’s biggest institutional investor means shouldering considerable responsibilities. Nonetheless this is an unusual title for someone running a unit within a larger whole and may be a slightly off-centre translation.

© 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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Japanese brokers invest to catch up on lost time and business

Japanese stock brokers’ research and advisory services won more votes from financial intermediaries than the Tokyo units of their overseas-headquartered competitors in a survey undertaken by Greenwich Associates and just published by the Boston-based firm.

Nomura Securities topped the poll followed by Daiwa Securities and Mizuho Securities.

An accompanying report notes that brokers’ positioning in research and advisory activities is “a key determinant of [their] overall performance because institutions allocate 60% of their Japanese equity commission payments to compensate the sell side” for providing such inputs.

This is reflected in the part of the poll designed to assess brokers’ Japanese equity trading services which again put domestic firms ahead of those from overseas — with Nomura Securities, Daiwa Securities and Mizuho Securities once more in the lead.

This is the second year in succession that local brokers have seen their popularity rise vis-à-vis foreign firms. This time around overseas and offshore clients provided the largest part of the surge in support, thus following the trend set a year earlier by domestic customers.

Greewich Jap brokers electron

Nonetheless Greenwich notes that “foreign brokers have been able to better defend their market share in trading for one main reason: In one of the world’s most electronic marketplaces, foreign firms still have the upper hand in e-trading competition.

“As the accompanying chart shows, only 41% of institutional trading volume in Japanese equities is executed via additional ‘high-touch’ single-stock trades with broker sales traders. The majority of trading volume is executed electronically via algorithmic trading strategies, smart-order routing, crossing networks, or portfolio trades.

“In the competition for trading volume, global brokers like UBS garner a considerable advantage from their well-established e-trading platforms,” says John Feng, one of three Greenwich consultants who worked on the survey.

The improving perception of Japanese firms’ capabilities seems to be solidly based with timing playing “an important role in this shift in the competitive landscape as several domestic brokers made significant investment in equities at the same time that a number of foreign brokers cut back.

“After an extended period of weak market performance and anemic flows in institutional trading volume and commission revenues, global banks had started to scale back their Japanese equity operations by 2012–2013.

“Meanwhile, several large Japanese banks were placing big bets by making sizable investments in their own equity research and trading platforms.

“At the same time the new Prime Minister Shino [sic] Abe launched the economic stimulus program that has come to be known as ‘Abenomics’, which then sparked a resurgence in the Japanese stock market.”

That Japanese financial conglomerates turned their minds to investing in their operations when they did may have been the result of 15+ years of repeated rounds consolidation among them coming to end – and so giving management  the time to focus on the future.

The same pattern has already proved true in asset management where Japanese big-hitters overtook their formerly all-conquering foreign counterparts in 2009.

The Greenwich survey was carried out among 163 equity portfolio managers, 135 equity traders and 118 equity derivatives users during July-September 2014.

© 2014 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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Assets in discretionary accounts up nearly 6% in 2nd quarter

The value of domestic equities in Japanese fund managers’ discretionary portfolios rose just 7.63% in the June-September quarter when the Topix all-share index climbed 10.31% and the Nikkei 225 6.67%.

By contrast the value of firms’ US stock holdings rose quarter-on-quarter by 11.49% to 14,460.1bn yen and that of US bonds by 10.48% to 18,460.1bn yen. These numbers were, however boosted by a 7.63% drop in yen:US$ exchange rate during the term.

The same movements would also have impacted the number for holdings of Asian stocks which jumped an impressive 29.22%, though from a low base, to reach 2,497.8bn yen.

In yen terms that was a quarter-on-quarter rise of 564.9bn yen, making a jump for the first nine months of the calendar year of 1,092.1bn yen – roughly consistent with the net figure of 1.82tr yen in the Bloomberg story of 27 November below (Japanese investors pour 1.82tr into Asia stocks and bonds) which presumably includes outflows via mutual funds.

The figures come from returns submitted to the Japan Investment Advisors Association by its members and do not include amounts which retirement funds manage inhouse. They thus exclude GPIF’s 26 trillion yen passive domestic bonds portfolio, and the 22tr+ yen in the hands of Mitsubishi UFJ Trust & Banking and Resona Bank which are not JIAA members. Money in pooled accounts at trust banks and life insurers is also excluded.

The Association’s numbers break down total amounts under management by type and location of investment but do not disaggregate the foreign and domestic subtotals. It is nonetheless fair to assume that money managed for overseas clients is invested in Japan while that from local sources is directed to markets both at home and abroad.

What the JIAA classifies as ‘short-term’ investments in Europe also saw a big increase in percentage terms but even the 47 .63% leap put only 972.9bn yen in this category.

By the close of the term Japanese stocks accounted for 22.75% of these portfolios compared with 22.34% previously.

The position looks set to change after the giant Government Pension Investment Fund announced at the end of October that it will increase its local equities allocation from 12% to 25% — a move that will necessarily impact total numbers given GPIF’s outsize role in the business.

Total assets in the June-September quarter rose by 5.71% to 182,262.4 billion of which 27,897.8bn yen was invested for foreign clients, an increase of 8.49% on the previous term, and 151,252.2bn yen for domestic customers, up 5.23%.

Japanese pension funds, at 112,247.4bn yen, are by far the largest local clients with corporate retirement schemes accounting for 27,116.0bn yen, up 2.08% on end-June, and the Government Pension Investment Fund plus some public sector plans for 85,131,3bn yen, a quarter-on-quarter rise of 6.72%.

The numbers are here

© 2014 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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Post Bank clout can support Tokyo stocks for years to come

Japan Post v SMBC's investment securitiesAt the close of the financial year on 31 March 2014 Japan Post Bank had an investment-securities portfolio worth 166.06tr yen of which 126.39 trillion yen, or 76.11%, was in Japan Government Bonds and just 935 million yen in local stocks.

Other banks’ positions were less skewed towards debt with, for example, Sumitomo Mitsui Banking Corp and its domestic subsidiaries holding 59.07%, or 14.24tr yen, of a 24.11tr yen portfolio in JGBs and 3.43tr yen, or 14.24%, in Japanese equities.

Were Japan Post Bank to adopt an asset allocation similar to SMBC the stock market would see an inflow of an almost unbelievable 23.2tr yen.

Yet Post Bank has at least two reasons for making such a move following the announcement on Christmas Day that it, as well as Japan Post Insurance and Japan Post Holdings (which has stakes in the other two and owns the postal delivery system), will be publicly listed sometime between September and August 2015.

First, by aligning itself with the practices of other major banks it would help institutional investors value its shares;

Second, by pouring such a flood of funds into the stock market it would ensure substantial price rises for all stocks, including banks, thus boosting its own likely offer price.

Post Insurance had JGBs to shed too

Sister company Japan Post Insurance is in a somewhat similar position but most of its peers are either privately held (mainly as mutuals) or are part of financial conglomerates. Only Dai-ichi Life Insurance is listed on the Tokyo Stock Exchange in its own right.

As the 24 November posting (see archive) shows, if Post Insurance were to normalise its investment holdings relative to those of its peers ahead of listing it would put 6.3tr yen into stocks, producing a smaller rise than Post Bank but one which is  significant nonetheless.

Neither institution is likely to its re-jig its positions all at once and any indication that they would in future commit a certain percentage of their holdings to stocks – as politicians have obliged the Government Pension Investment Fund to do — would be as unhealthy for equities as it has been for the national debt market.*

The idea that such huge amounts of money will be free to enter the stock market will nonetheless lend ongoing support to equities — especially since it seems likely that the government will remain Post Bank’s dominant shareholder for years to come.

Support would also come from a mooted extension of eligibility to join defined-contribution pension schemes which currently have only around 183,000 subscribers. This would receive a massive boost if a proposal to include full-time homemakers is accepted.

Mrs Watanabe makes the difference

These same housewives could well form the core of demand for all three types of shares in Japan Post — which is both well known and well liked throughout the country.

Many Mrs Watanabes are active mutual fund investors and Nomura Securities has the ability to reach almost all of them through its formidable telephone sales operation — which may be why it was as one of four global co-ordinators of the offering. The others are Goldman Sachs, JP Morgan and Mitsubishi UFJ Morgan Stanley Securities.

Retail investors will also play their part in demand via Nippon Individual Savings Accounts (NISAs) which were introduced in June and the three offerings could become Japan’s equivalent of the UK’s 1984 listing of British Telecom (also formerly part of a national post office) which was aimed at creating a shareholder culture among the men and women in the street.

Long-term institutional investors may, though, need more encouragement to bid for the shares than Japan Post having recognition name among the country’s 126 million people.

The population is falling, cutting levels of demand for everything from insurance to cars. Japan Post’s mailing operations run at a loss and its banking and insurance businesses are constrained in the products they can offer – no mortgages, for example — to prevent them from competing with entities which had to build their businesses without access to its once privileged position.

* Three days before Japan Post’s announcement the Ministry of Finance published the English-language version of the Fiscal Investment and Loan Programme’s FY2014 annual report which shows the extent to which the government relied on postal savings and insurance products plus people’s pensions contributions to supposedly prime the economic pump by building its now famous roads to nowhere.

© 2014 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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