Where will the trillions of dollars from Fed shrinkage go?

The US Federal Reserve intends to shrink its balance sheet by not reinvesting in government debt the repayments of principal it will receive as its current holdings of such paper mature, according to an addendum to the central bank’s decision to raise the Federal funds rate by 0.25 to 1.25%.

This is very similar to the route taken by the Government Pension Investment Fund in reallocating its assets away from Japan Government Bonds which it has done by waiting until the paper matures and then reinvesting the proceeds in domestic stocks and foreign markets.

Glaringly absent from the Fed’s announcement is any indication of what it will do with the proceeds from its redemptions. These will initially be capped at US$6 billion per month for Treasury securities, later rising to a monthly maximum of $30bn, and $4bn per month for agency debt and mortgage-backed securities, later rising to a monthly maximum of $20bn.

The size of the balance sheet which the Fed is seeking to ‘normalize’ (it does not say ‘shrink’) has grown from US$870,261mn on 30 July 2007, before the financial crises, to $4,476,108mn on 5 June 2017, as it has fought to stave off a recession.

Will the billions resulting from what the Fed receives for maturing paper be somehow funneled back to the coffers of the entities which issued it — perhaps by them simply not paying the amount due on redemption? Whatever the mechanism does it amount to cancelling the debt?

Will the Bank of Japan take the same route when the time comes for it get back to ‘normal’? If the Fed does it, almost certainly.

© 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’s allocations steady as they take wait-and-see stance

Japan’s life insurance companies closed the financial year on 31 March with their investment portfolios in a holding pattern that has them opting to ride out market movements and resistant to the usual end-of-term window dressing.

Figures just released by the Life Insurance Association of Japan give context to the remarks of its chairman last week when he asked that the Bank of Japan make clear its strategy for ending the distortions in the Japan Government Bond market (see posting immediately below).

Given the country’s underdeveloped corporate bond market, and Japanese companies’ lack of any need to borrow, government debt is one of the few ways  life cos can match the duration and currency of their liabilities to their assets.

But BoJ’s massive purchases have distorted valuations and removed much of the previous certainly from the market.

At year-end the sector’s combined holding of JGBs accounted 39.5% of portfolios, much the same as at the close of the previous quarter, though this is much less when Japan Post Insurance in removed from the picture (see archive 20 March 2017 Life cos (-Post Insurance) now have 30% of their money abroad).                     Text continues below table.

When asked by Reuters in October last year about their asset allocation intentions for the half year to March 2017 (see archive 7 November 2016 Life cos invest overseas as need for yield becomes paramount) their answers were on the way to being as mixed as they became by six months later (see archive 26 May 2016  Life cos’ portfolios move more diversely than usually depicted).

Vendors of infrastructure-based products are already knocking on the doors of more than just Nippon Life is known to have established an allocation for the sector. (see archive 1 May 2017 Life cos’ shape up in foreign debt, infrastructure markets).

© 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 insurers ask BoJ to map out how it will exit easing

‘”The BOJ shouldn’t be afraid of revising (its exit strategy) in the future and openly debate the subject now, paying heed to market voices,” Akio Negishi, chairman of the Life Insurance Association of Japan, told a news conference on Friday’ according to Reuters.

Buying up Japanese government bonds has been at the core of the central bank’s quantative easing strategy and how this paper is valued directly impacts life cos’ balance sheets which at 31 December were worth 369,119 billion yen of which 40% was in JGBs [see archive March Life cos (-Post Insurance) now have 30% of their money abroad]

‘”We hope the BOJ releases [details of an exit strategy] with clear, meticulous explanation” that could avoid causing market confusion”‘, Mr Negishi added.

© 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, 1959-20

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GPIF’s Mizuno “not satisfied” with asset managers’ governance

Japanese asset managers  … “have to have best-in-class corporate governance before they ask their portfolio companies to improve their corporate governance… ‘I’m not very satisfied so far’”,  GPIF’s CIO Hiromichi Mizuno told a London conference on Tuesday according to Investment & Pensions Europe.

In addition “Mizuno said he wanted to incentivise Japanese corporates to perform better on environmental, social, and governance issues, and allocate more to corporates and managers that took such issues seriously.

“GPIF also wants to bridge a communication or transparency gap between ESG researchers and the companies they evaluate, he said.

“Mizuno said he was ‘tired’ of hearing those assigning ESG scores to corporates saying companies were not good enough or did not disclose the necessary information, while on the other side corporations said they did not know what information the ESG researchers were looking for.

“GPIF is therefore demanding that index vendors and ESG researchers disclose the methodology they use so companies know what information is being sought, said Mizuno.”

© 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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Pension amounts in pooled accounts falls 4.4% to 78.5tr yen

Trust banks and life insurance companies acted as sokanji to 13,650 corporate pension funds in the year ending 31 March 2017, down by 150 from a year earlier, figures just published by the Life Insurance Association show.

In this powerful gatekeeper role the firms not only manage clients’ assets in pooled accounts but also provide custody, administration and many other services.The relationship is usually in perpetuity.

All company retirement schemes which pay defined benefits must have an such an ‘organiser’ under a law which directs that smaller plans use life insurance companies and the larger arrangements trust banks.

With Employee Pension Funds being officially phased out, the year just-ended saw the number of EPFs drop from 256 to 110 while so-called DB schemes (many of which are converted EPFs) also fell to hit 13,540 from 13,690.

At the same time the number of scheme members went below 10 million for the first time to reach 9.57mn — probably in line with the country’s contracting work force numbers.

Trust banks had 3,808 clients DB-scheme clients for whom they managed 43,938.1 billion yen, compared with 42,676.5bn yen for 3,776 DB customers in the year ending 31 March 2016.

Life cos by contrast had 9,379 DB clients for whom they managed 15,062.0bn yen compared with 14,788.3bn yen 9,551 such customers last time.

Ninety-three EPFs now have just 17,924.3bn yen left with trust banks, down from 207 with 22,745.9bn a year ago, while just 17 of their number have 1,147.1bn yen with life cos against 49 with 1,461.0 in the previous term.

When the 300+ funds handled by Zenkyoren are added to the reckoning the financial year closed with 78,5144.4bn yen managed for pension funds in pooled accounts compared with 82,10702 a year ago.

The Life Insurance Association numbers are the first of two reports on the pooled funds sector to appear each year. The results of the survey by fortnightly newsletter Nenkin Joho, which breaks down the numbers by individual trust banks and life cos, usually appear in July.

© 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,

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New code requires specifics on institutional shareholder votes

Update: By day’s end Sumitomo Mitsui Trust Bank, which nowadays likes to be known as SuMi TRUST, had issued a statement noting the importance of stewardship to its soul:

“SuMi TRUST understands the revised guidelines, in particular, with regards to voting rights. For Japanese shares held under management, SuMi TRUST will improve visibility by disclosing the results of all voting records for all investee companies on all resolutions in addition to the approval/disapproval of candidates.” ________________________________________________________

The Financial Services Agency will ask institutions and their investment services providers to “disclose voting records for each investee company” — rather than, as now, to show their voting records in aggregate — under new version of the stewardship code coming into force in June, according to the Nikkei Asian Review.

Locating the new code on the FSA’s web site is not straightforward. It is here.

On 30 May Nomura Asset Management became the first investment services provider to unveil its voting record on individual companies’ proposals (see archive for that date).

Almost four weeks earlier Dai-ichi Life had become the first life co to announce its intention to make such disclosures.

© 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

 

 

 

 

 

those facilitating

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GPIF seeks unconstrained new views on asset servicing

The Government Pension Investment Fund is seeking comment on its current asset servicing arrangements and ideas for the future. The deadline for submissions is 30 June.

While highlighting its interest in the utilities listed in the box alongside, the Fund seems to be adopting a very open minded approach noting: “We will consider all the submitted comments regardless of the gaps in current industry practices and applicable regulations, however, please make sure to specify the constraints or challenges for implementation.”

Management of what are usually known as ‘corporate actions’ — such as decisions on taking up rights in share issues by invested companies or voting on mergers proposed by them — are not mentioned in the announcement. This is a little surprising given GPIF’s emphasis on its own and its asset managers’ stewardship responsibilities.

At the end of the financial year on 31 March 2o16, the Fund had four custodians, one each for domestic bonds and short-term assets, domestic equities, international bonds and international equities (see box above for fees), and on 22 April 2016 it announced that State Street Trust and Banking had been appointed as custodian for alternative investments.

A little over a year earlier, on 3 April 2015 (see archive), the Fund had awarded transition management mandates to BlackRock, Nomura Asset Management and Russell Investment. However, unlike the Pension Fund Association, which is also under the auspices of the Ministry of Health, Labor and Welfare, GPIF has yet to appoint an outside entity to provide so-called “engagement services” which help investors communicate with firms whose shares they hold.

© 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’ portfolios move more diversely than usually depicted

A quartet of Japan’s life insurance giants announced lacklustre results for the year ending 31 March 2017 yesterday and today many media today reported them by simply repeating verbatim the story in the Nikkei. Most of what it had to say has been expected for so long it is old news and a peek at the balance sheets is more interesting.

Here are the results in full of Nippon LifeMeiji Yasuda Life, Sumitomo Life and Dai-ichi Life. 

And here’s the peek which is minus Dai-ichi Life because the way it sets out securities holdings in its balance sheet does not immediately fit well with the others. Also excluded is Japan Post Insurance which reported last week (see archive 16 May)

So: interesting, no? Not much homogeneity and there would be even less were Post Insurance to be brought into the picture

For all the talk about the impact of the Bank of Japan’s negative interest rate policy, holdings of yen- denominated bonds have held steady at Sumitomo and Meiji Yasuda and risen 10% at Nippon.

Conversely, domestic stocks fell by 14.6% at Nippon — where they have for some while accounted for a greater proportion of the portfolio than at the other two — but rose by 18.2% at Sumitomo and 13.6% at Meiji Yasuda.

When all categories of foreign securities are grouped under one heading they rose 6.9% at Nippon, 15.9% at Sumitomo and 6.6% at Meiji Yasuda.

Next week should see the Life Insurance Association of Japan reporting on the holdings of the sector as a whole.

The Nikkei, and those who copied it, made much of the steep decline in the firms’ premium income but that is the result of the fall in the population and therefore fewer lives to insure and long seen coming.

Since there are still policy holders whose needs must be met, investment income and returns assume proportionately greater importance.

Today the life cos are keeping to their practice of managing the bulk of their portfolios inhouse but that could change if they venture abroad more in search of returns.

However, they have already gone overseas in search of profits; snapping up stakes in foreign companies, and that could give them the confidence to do more foreign investment inhouse too.

How a range of life cos told Reuters in April that they planned to invest in the next six-12 month is shown below.

   © 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 hands Hermes foreign stewardship role

Hermes EOS, the stewardship and engagement team of Hermes Investment Management has been appointed by Asset Management One to provide “… a range of engagement services on the firms’ ¥4.7 trillion worth of global holdings (ex Japan) across a variety of environmental, social and governance (ESG) issues” according to a Hermes press release

In a comment on the appointment, Asset Management One’s Chief Investment Officer Akitoshi Masuda noted that the firm is “.. pleased to form a partnership with Hermes EOS, which will enable us to start engaging with overseas companies”.

© 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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R&I annual awards to institutional investment firms announced

It’s a sunny day in Tokyo and especially so for Mitsubishi UFJ Trust & Banking, Sumitomo Mitsui Asset Management and Wellington Management Japan, each of which has just scored three places in Rating & Investment’s annual awards to managers used by the country’s defined-benefit pension schemes. The awards cover nine investment categories.

The climate is also pretty good for Ashmore Japan, Goldman Sachs Asset Management (surely the first time these two firms have been included on single score sheet) and at T. Rowe Price, each of which take two places.

Sunbeams come singly for a further 14 firms whose products have wins in a wide range of strategies.

The three winners in each category were selected on the basis of their information ratios over the three years ending 31 March 2015, 2016 and 2017, as monitored via R&I’s universe.

R&I is the actuarial consulting subsidiary of the Nikkei Inc newspaper Group and a sister company of the Quick Asset Management Research Centre, both of which support the awards that are now in their eleventh 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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