Life cos’ shape up in foreign debt, infrastructure markets

European institutions have been doing it in droves for some time. Now their Japanese counterparts look like heading in the same direction.

The difference between the two is that the Tokyo-based investors are looking to invest in so-called ‘credit products’ (also confusingly dubbed ‘debt products’) denominated in foreign currencies.

And there is also some evidence that the bigger Japanese firms are involving themselves in doing due diligence on borrowers and facilities rather than simply buying up loans in the secondary market.

The move overseas shows up in the most recent of the life insurers’ regular statements about their investment intentions in the coming financial term which Reuters helpfully consolidates into a table (below). The need to compress data under just a few headings inevitably over-simplifies and in this case creates some tension between what is a foreign debt and what an overseas project financing and thus an ‘alternative’.

From huge Nippon Life to little Fukoku

Nippon Life, the second largest life co by asset size after Japan Post Insurance, reports a likely move Euro bonds and US corporate and mortgage bonds without FX-hedging while the relatively small Fukoku Life has plans to establish ‘a 500 billion yen fund to invest mainly in foreign credit over next five years’.

Loan demand is so low in Japan that, rather than fighting to get loans and other debt obligations off their balance sheets to free up space, banks are struggling to win customers in the first place. US and European banks, by contrast, have plenty of business they can package up and sell on.

Buying such debt necessarily involves the question of what Asahi Life describes as the ‘hefty costs’ of hedging.

Japanese institutional investors have long struggled with this issue and seemingly never found the right model or even the right model for any one time. Given the amount of money that needs to leave Japan for investment abroad and the level of foreign demand for the yen as a safe haven, it is perhaps surprising that no provider has yet come up with a proposition that institutions find attractive.

Domestic debt  down, foreign investments up

Both Dai-Ichi Life and Meiji Yasuda Life are proposing to find suitable debt products in the domestic market but the life cos’ overall holdings of yen bonds are set to wane and those of foreign stocks and bonds to rise.

Nippon Life and Asahi Life are both looking to alternatives with Nippon expressing an interest in ‘infrastructure funds and venture capitals’ and Asahi on the lookout for investments in this class with a ‘medium risk/return’ profile.

In January Nippon’s president Yoshinobu Tsutsui told Reuters that the firm will invest in project finance beginning this year as it ‘explores opportunities around the globe’ and the next month it made its first such loan.                                        Text continues below table

As yet there are no numbers showing the disposition of the firms’ portfolios at the close of the financial year just ended but these are due soon from the Life Insurance Association of Japan. For the numbers at 31 December see archive Life cos (-Post Insurance) now have 30% of their money abroad 2017-3-21.

For the life cos’ stated investment intentions at 31 September 2016 see archive Life cos invest overseas as need for yield becomes paramount 2016-11-7.

© 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

Posted in Articles | Leave a comment

GPIF alts meeting materials show willingness to co-invest

For those who were unable to attend the Government Pension Investment Fund’s 19 April orientation meeting on its previously announced call for applications from managers of alternative assets (see below GPIF tiptoes towards PE, infrastructure and real estate 12  April 2017) , the materials presented at the gathering are available here.

While the Fund’s initial announcement pointed to its preferred route into alternative as via funds-of-funds the new material notes that co-investments with other institutional investors will also be considered – but not yet.

Five years ago the Pension Fund Association, which invests the retirement savings of those who have left an employer’s schemes by changing jobs, joined the Global Strategic  Alliance (see archive Japanese join Canadian plan in huge new infrastructure fund 2012-4-27) and a year later became the first Japanese pensions entity to co-invest with other institutions when the GSA backed a gas-fired power plant in the US state of Michigan run by Midland Cogeneration (see archive 2013-7-2).

The purpose of the push into alts is to diversify investments and improve returns.

For more on GPIF and the PFA  see under ‘The giants’ tab atop this page.

© 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

Posted in Articles | Leave a comment

Imminence of institutional infrastructure investment over-stated

Japanese investors are ‘primed to play a key funding role for global infrastructure and real estate’ according to a new report from AMP Capital, the fund management subsidiary of giant Sydney-based pensions provider AMP Ltd.

AMP Capital has over A$165 billion in its stewardship and acknowledged expertise in physical assets investment.

In support of its conclusion the publication points to patterns in Japan’s demographics, investment yields and institutional money under external management.

These well known trends do indeed indicate the logic of institutions investing in income-producing assets but do not in themselves demonstrate that institutions are any more ‘primed’ to do so now than they have been in the past several years.

Not as near as it looks

The only factor to have changed significantly in that time is the rise in assets under management from non-pensions sources which shows up in Japan Investment Advisors’ Association statistics as money from ‘other’ customers (see archive Asset management rides high on market gains and new money 23 March 2017).

As ‘others’ are reliably said to be mostly small regional banks needing to park money during a period of very low loan demand, it is unlikely that the cash is destined for investment in illiquid infrastructure or real estate assets.

The huge ‘government’ pensions category in the JIAA numbers is dominated by the Government Pension Investment Fund, the world’s largest institutional investor, which has made clear its interest investing in property and infrastructure — but via segregated funds of funds managed solely for it (see archive GPIF tiptoes towards PE, infrastructure and real estate 12 April 2017.)

Many corporate pensions will readily acknowledge the logic of committing money to revenue-earning assets and have been lamenting for several years that they do not have the expertise to judge such projects.

Supporting pensions decision-making

GPIF is often seen as leading the way for other retirement schemes to follow but its allocation to all types of ‘alternatives’ is limited to 5% of its portfolio and corporate funds would be cautious about committing any more – even to funds of funds — of their very much smaller pots while that ceiling remains in place.

Company pensions are only very rarely staffed by investment professionals or even by staff who stay in the job for very long since, like all other corporate personnel, they are subject to Japan’s job rotation system* which sees them moved to different work every three years or so.

Persuading these employees to commit the pension contributions of their employers and fellow workers to anything new will need and a large and imaginative educational effort.

That in turn will be complicated by the complete absence of any Japanese-language  institutional investment media other than a highly technical fortnightly newsletter published by an actuarial consultant and costing over US$1,000 a year.

In theory life cos are better placed to invest in real assets but in practice the only recent change in the composition of their portfolios has been in the swelling ‘foreign securities’ component (see archive Life cos (minus Post Insurance) now have 30% of their money abroad 20 March 2017).

Japan Post Bank, and to a lesser extent Japan Post Insurance, has talked so much about expanding its massive holdings into ‘alternatives’ that when action finally comes it will look like very old news.

Meanwhile the behemoth city banks keep income-earning assets such as aircraft leases on their own balance sheets since they too have to find alternative means of investing  given the absence of growth in loan demand. Only occasionally does something investible come loose from this pack (see archive Banks let investors in on aircraft leasing act at last 11 July 2016).

Similarly Japan’s trading companies – Mitsubishi, Mitsui, Sumitomo, Marubeni, Itochu, etc — own as part of their business logistics facilities around the world which, were they ever short of money, they could package for sale to pension funds and then lease back.

The same is true of the property firms which own much of central Tokyo.

The snag is that none of them is sort of money.

However, they are sometimes short of imagination and that lack allowed enterprising foreign firms to spot the unmet demand for warehousing facilities as Japanese distribution patterns changed and to make a significant success of packaging projects which build and/or invest and selling them on to institutional investors.

* For examples of how job rotation works ttp://www.nytimes.com/1982/07/12/business/how-job-rotation-works-for-japanese.html and http://www.nytimes.com/1982/07/12/business/how-job-rotation-works-for-japanese.html and http://www.japanintercultural.com/en/news/default.aspx?newsid=194. Both are now some years old but very little has changed.

© 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

Posted in Articles | Leave a comment

GPIF tiptoes towards PE, infrastructure and real estate

The first alternative assets to be included in the Government Pensions Investment Fund’s portfolio will be structured as fund of funds and designed and managed separately for it alone. Those investing mainly in listed funds will be excluded from consideration.

Asset management firms with appropriate capabilities now being invited to register their interest with GPIF for a review process which will begin on 1 June.

The first four fund types sought are those investing internationally in private equity, infrastructure and real estate plus those focused on real estate in Japan. The preference among the last three is for those aimed at generating stable income.

Firms who wish to attend a 17 April orientation meeting about the process should register by emailing setsumei_alts_ff@gpif.go.jp by 10 a.m. on 14 April with the name of the company and the attendees.

Managers who are not authorised to do business in (and are thus not regulated by) Japan must apply jointly with a local partner firm.

GPIF is also not closing the door on asset managers which do not meet its criteria but says they must supply detailed information such as performance data.

The first four areas of interest are as follows (note that the ‘global’ requirement can include products investing in specific geographical regions) ;

Private equity – diversified global funds pursuing various strategies.

Infrastructure – global funds investing chiefly in developed countries, including brownfield projects and focused mainly on generating stable income.

Real estate – global funds investing mainly in developed countries and focused mainly on generating stable income.

Real estate – diversified domestic vehicles focused mainly on generating stable income.

© 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

Posted in Articles | Leave a comment

Business up and a new name for personnel from the Pru

Prudential Investment Management Japan Co Ltd will change it name to PGIM Japan Co Ltd (PGIMジャパン株式会社) from 1 October, in line with the worldwide rebranding which its New Jersey-based parent embarked on in January 2016.

Before then PGIM entities operating in jurisdictions where the British Prudential plc, founded in 1848, also had a presence used the name Pramerica to avoid confusion. However as the American company, founded in 1875, expanded around the world it became necessary to make a clear distinction between the two.

Prudential Investment Management Japan, which is known mostly as a yen bond house, will be putting under the new name a business which built slowly at first but with its foundations in place grew at considerable speed under its long-term president and CEO Yasuhisa Nitta (below).

In 1999 the firm had a mutual fund business with 15 billion yen of assets, the Japan Pensions Industry Database shows. A year later it it was  investing another 1.0bn for defined-benefit corporate pensions.

By the 2013 financial year the mutual fund business had grown to 86.4bn yen but that was a record never seen again as by 2016 the number was a lowly 18.4bn yen.

Meanwhile the pension business took a few knocks too. In the 2012 financial year  it was handling just 15.7bn yen in DB retirement schemes compared with 33.4bn yen in 2007. But in the next year the number jumped to 435.5bn yen and by 2016 it was 984.1bn yen.

As the calendar year came to a close the firm was running 1,189.6bn under nine mandates from public sector funds and 13.9bn yen under three mandates from corporate sponsors.

Yet PGIM’s real success, figures submitted to the Japan Investment Advisors Association show, has come from winning ‘other’ customers from whom on 30 December it held 92 mandates worth 15,169.3bn yen — vastly outweighing its pensions and mutual fund businesses.

The distribution of what JIAA members report to the Association under the non-specific category is not known but it is widely believed to be money from regional banks and other financial  institutions as they have abundant deposits but no loan demand and must put their customers’ money to use if they are to pay even meagre levels of interest.

© 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

 

 

 

 

 

Posted in Articles | Leave a comment

Manulife’s Nagata retires, baton passes to Pimco’s Yamamoto

Shinichi Yamamoto has become president and chief executive officer of Manulife Asset Management (Japan) Ltd, taking over from Yoshihide Nagata who retired at the end of last month after several years in the post.

And what a few years it was.

Manulife is known in Asia more for its retail than its institutional business but it made brave start in the 2008/09 financial term by getting 3.0 billion yen in segregated corporate pension assets under its management, the Japan Pensions Industry Database shows.

For the four years after that number barely budged but by the 2012/13 term the firm had moved into retail and sold 3.2bn yen in investment trusts (as mutual funds are called in Japan). This quickly moved into double figures and at the end of last year on 31 March 2016 the business was worth 69.8bn yen (down from 79.9bn yen 12 months previously) while privately placed funds, which are often for institutional customers, were more than double at 184.9bn yen.

This pales besides the Manulife’s strides in the institutional market when in 2012/2013,, while still a relative newcomer, it was awarded by the giant Government Pension Investment Fund a whopping 400bn yen mandate to actively manage domestic bonds . In 2015/16 its performance on this trove was below the benchmark but only by o.02% and its reputation has gained strongly enough for it to be managing 1,234bn yen for public retirement schemes by 31 December last year, though it still had only 12.7bn yen from corporate funds.

The firm has also done well in non-pensions institutional business, with Japan Investment Advisors Association figures showing it now manages 1,195.1bn yen for customers which are thought to be mostly financial institutions – particularly regional banks.

New boss Shinichi Yamamoto joins from Pimco Japan Ltd where he was president for three years after joining the firm from Goldman Sachs in 2002 to head up the retail business.

© 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

Posted in Articles | Leave a comment

SMBC sets up €3 billion debt fund with Park Square Capital

Financial institutions are becoming asset management’s most interesting segment (see archive 2017-3-27 Asset management rides high on market gains anew money) and foreign loans are the investment increasingly attracting their attention. They are both setting up and investing in funds which lend directly to borrowers or buy existing facilities in the secondary market.

This makes sense since banks already know to do credit analysis but have little need to use their skills in Japan where demand is low and customers and their lenders know each other well through ties that have endured for decades.

Pension funds abroad are being are also attracted by the asset class which they see as protecting them some of the volatility they expect to see as a result of geo-political and societal risks.

Sumitomo Mitsui Banking Corp missed out on acquiring GE Capital’s Ares Management when it bought the firm’s European Sponsor Finance business in 2015 and has been looking since then to create a similar entity.

Last month it set up with the London-headquartered Park Square Capital a joint venture vehicle, for which fund raising of €3 billion is expected to close shortly, that will provide unitranche loans to European middle-market companies.

The venture will be headed by Howard Sharp, Park Square’s head of mid-market direct lending and Owen Verrier-Jones, SMBC’s head of sponsor coverage and origination, who both joined their respective firms from GE Capital in 2015.

Park Square was founded in 2004 by former Goldman Sachs executives and is backed by Ontario Teacher’s Pension Plan and the Caisse des Dépots et Placement du Quebec.

© 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

 

 

 

 

 

 

 

Posted in Articles | Leave a comment

GPIF’s CIO Hiromichi Mizuno rides half a year onwards

Hiromachi Mizuno, CIO of the Government Pension Investment Fund since he joined from London private equity firm Coller Capital in November last year on a two-year contract, has had his term extended by six months according to an announcement on GPIF’s web site.  No explanation was offered for so short a tenure but US magazine Pensions & Investments reports that it is ‘in line with a law which passed Japan’s parliament late last year to reform GPIF’s governance structure.’

© 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

 

Posted in Articles | Leave a comment

Back to black for 100+ big corporate pension funds

‘Around 100’ of Japan’s ‘major’ corporate pension funds enjoyed returns of 3.5% in the year ending 31 March, according to actuarial consultants Rating and Investment Information, a subsidiary of the Nikkei newspaper which reported the results. The funds reviewed had assets totaling 9 trillion yen and were most probably R&I clients.

This performance is the first positive outcome in two years and compares with a loss of 0.7% last time. The number was calculated by using actual figures for the first 11 months of the year then adding estimates for March based on the funds’ asset allocation. It is significantly higher than the 2% which had earlier been expected.

With the Nikkei Stock Average rising 13% during the term and Dow Jones Industrial Index by 17%, yields on both domestic and foreign stock were positive even though a rising yen ate into the overseas gains.

The currency effect also diminished the value of overseas bond holdings and prices for local debt paper declined in line with the Bank of Japan’s monetary easing policies.

The Nikkei report notes that a survey by Willis Towers Watson, another actuarial firm and an R&I competitor in Japan, which covered 120 pension funds, also put their gain for year at 3.5% but pegged last year’s outturn at -0.6%.

© 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

 

Posted in Articles | Leave a comment

Asset management rides high on market gains and new money

Money managed under discretionary mandates by member firms of the Japan Investment Advisors’ Association hit a record 213,797.7 billion yen at the end of December, just- released figures show.

While rising local and US stock markets and a fall in the value of the yen contributed to the overall 14.8% gain during the third quarter, new money also played a part; the number of mandates from non-pensions domestic clients rose by 28.2% to 1,237 during the third quarter and the assets they represent climbed 31.3% to 55,276.9bn yen.

Six years ago these ‘other’ clients – which are thought to consist predominantly of regional banks — had assets in JIAA members’ stewardship of about 23,352.2bn yen, roughly equal with that of local corporate pension funds.

Today they have almost twice as much as companies’ retirement schemes’ 252,920bn yen.

The recent inflows may also be responsible for the only major change during the term in asset allocations  with domestic equities rising from 26.3% to 27.9% of portfolios while domestic bonds showed an even more significant move – dropping from 24.2% to 22.4%.

The expanding business from regional banks arises from the very low loan demand experienced by these institutions which need somewhere to put their money. To generate revenue many have also become distributors of mutual funds run by firms that are members of another trade body, the Japan Investment Trusts Association.

And some may be in trouble.

The Nikkei reported on 9 March that the Financial Services Agency is launching audits of some regionals whose inhouse asset management units are thought to have lost money though large exposures to US treasuries yields on which rose, and prices fell, sharply in November.

© 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

Posted in Articles | Leave a comment