SMTB becomes top KKR manager, displacing in-house team

The in-house management team at the Federation of National Public Service Personnel Mutual Aid Associations (KKR) is no longer the MAA’s top fund manager. A drop in domestic bond holdings, all of which are managed internally, means that Sumitomo Mitsui Trust Bank — with its mandates to actively and passively manage domestic stocks, actively and passively manage foreign bonds and passively manage foreign stocks — now leads the field. For the details see under the KKR section of ‘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

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FILP bonds may weigh heavily on KKR portfolio for many years

The just-published first quarter report of the Federation of National Public Service Personnel Mutual Aid Association, usually known by its Japanese acronym KKR, shows it to be making very slow progress in re-balancing its portfolio away from bonds — and FILP bonds at that.

As previously reported (see archive 18 May 2017 Heavy lifting on re-allocation looms for public service pension), the retirement fund has undertaken to its regulator, now the Ministry of Health, Labour & Welfare, that it will move its asset allocation into line with that of the Government Pension Investment Fund (GPIF).

Achieving this within a decade looks impossible unless the Ministry of Finance forgoes its power to have civil service retirement schemes make duty investments in, and then hold to maturity, obligations issued by the Fiscal Investment & Loan Program.  Known as zaito bonds these pay for so-called ‘second budget’ projects.

It took GPIF 11 years to run down its FILP holdings from a peak of 30,653.8 billion yen in March 2006 to 1,647.2bn yen in March 2017. As the Fund could not sell its zaito bonds it had to wait until paper matured and then invest the proceeds elsewhere. KKR seems to be taking the same route.

However, GPIF’s FILP investments never accounted for 40%+ of its total portfolio as they do at KKR.                                                                           Text continues below tables

At 31 March 2017 KKR’s duty holdings were 29.15bn yen or 43.25% of the total. Three months later they were 28,576bn yen or 42.62% — down only 0.63%.

Such huge illiquid investments distort the rest of the portfolio with other fixed income investments accounting for only 8%. This looks too low to meet benefits payments coming due this year and may, or may not, indicate that a large portion of FILP holdings will mature before 31 March 2018.

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Sorry it is taking so long to post under ‘The Giants’ tab an English-language version of the table showing who was managing what for KKR at the 31 March 2017 year-end. It will be there soon. Meanwhile the Japanese-language version is here and includes lots of other interesting stuff including managers’ performance.

© 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 to help develop yardsticks for measuring…not a lot so far

In a press release issued yesterday, in Japanese only, the Government Pension Investment Fund announced that it and the World Bank will research what new yardsticks — ratings, benchmarks, guidelines and so on — are needed to help investors pursue ESG strategies via bonds.

This is presumably investors in foreign bonds since the Japanese fixed income market consists almost entirely of government debt and the number of corporate issuers is minuscule.

Neither of the institutions involved has yet mentioned the budget allocated for the work.

© 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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Insurers active in both buying and selling foreign firms

MS&AD Insurance Holdings is to invest up to £800m ($1bn) in ReAssure Jersey One Limited, a UK unit of Swiss Re, in a two-stage deal which will see it first acquiring 5% of the target’s outstanding shares for £175mn by 31 March next year, and then subscribing over three years for new shares to bring its total holding up to 15%.

The Japanese company is the country’s largest wholly private sector insurer and has both life and nonlife units. The deal has been characterised by the Nikkei newspaper as representing “MS&AD’s first big investment in Europe, and the company looks to use it as a steppingstone for business expansion there and to diversify its revenue sources, which center on Japan and the rest of Asia”.

Just a month before, Sompo Holdings, one of Japan’s Big Three property and casualty insurers, agreed to sell Sompo Canopius, which it acquired in 2013 for US$970mn million, to a private equity consortium led by Centerbridge Partners for US$952mn.

As they seek to escape the constraints of a shrinking population, insurance  companies have been very active in seeking overseas opportunities and Sompo gave its reason for disposing of Canopius as a lack of fit with Endurance Specialty Holding of the US which it acquired earlier this 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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Government keeps Chikyoren’s bond allocations at a high 40%

The Pension Fund Association for Local Government Officials, usually known as Chikyoren, made an investment return of over 5.5% on both its main accounts last year, pushing the asset value of the Employee Pension Insurance Benefit Adjustment Fund to 10,461.3 billion yen by 31 March and the Transitional Long-term Benefit Retirement Fund to 10,969.5bn, according to its latest annual report.

Civil service mutual aid associations, including Chikyoren, have been steadily reorganised in recent years so that the structure and benefits of the pensions they manage is more aligned with those of private sector workers which have also been streamlined.

The Employee Pension Insurance Benefit Adjustment Fund manages the equivalent of what was known in the corporate context as the daiko (and which companies have now mostly handed over to the Government Pension Investment Fund) while the Transitional Long-term Benefit Retirement Fund handles the equivalent of former Employee Pension Fund assets.

Both accounts slightly under-performed their local and foreign equities benchmarks during the year.

By contrast Japan Government Bond holdings performed well because the duration of “domestic bonds held as part of the mandatory investment was shorter than the duration for the benchmark, which kept the rate of [a] price drop due to an interest rate rise [after the US presidential election in November 2016] lower”.

Text continues below tables

 

It is, presumably, the ‘mandatory investment’ imposed on civil service pensions by government many years ago and still not lifted — despite the current Bank of Japan policy of buying up this debt — that is keeping both accounts’ allocations to domestic bonds at around 40% while that of GPIF, with which they are supposed to be falling into line, is around 30%.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

© 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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After lean years Northern Trust appoints new head of Japan

Northern Trust has appointed Keishi Yamamoto to lead its asset management business in Japan. He replaces current president and representative director Hidehiro Nakayama who retires later this year.

The hope must been that the new appointment can turn around Northern Trust’s flagging fortunes. In the year ending 32 March 2004 the firm acquired Deutsche Asset Management (Japan)’s passive book and landed out of nowhere in the Japan Pensions Industry Database’s annual ranking of firms by their domestic pension assets under management in 10th place. Today it is ranked 53rd.

Mr. Yamamoto joins from Wellington Management Japan, where he has served for the past ten years as head of its pensions business. He has also worked in sales leadership and investment strategy roles at Lazard Japan Asset Management, RS Asset Management and Nomura Securities as well as running his own hedge fund at Empower Investment and serving as operating officer to Bridge Capital’s hedge fund incubation 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

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Pension Fund Association returns pull out of a nasty downturn

The year ending 31 March 2017 brought better times the Pension Fund  Association’s portfolio which closed the term up 5.96% with assets of 132.26 trillion yen, the PFA’s just-published preliminary annual report shows.

The Association manages the world’s 26th biggest pool of retirement savings which is Japan’s third largest, according to the latest figures from Willis Towers Watson.

All of the better performance was derived from stocks with domestic equities rising by 15.67% to reach 16.9% of the portfolio and foreign equities climbing 15.13% to 27.6%.

These shifts are in line with the Association’s allocation mechanism which  dictates an equity:bonds split of 40%:60% when the funding level below is 100% and a 5% drop in the equities component for every 5% improvement in funding.

The PFA has no contributions income to deal with since its — until recently its only – job is to manage the accumulated pension assets of staff moving to other companies which would otherwise be orphaned.

Today it also invests the rump of some Employee Pension Funds which have been closed by their corporate sponsors. This pool of just 2.99tr yen is 21.1% in stocks and 78.9% in bonds.

The list of asset management firms handling the Association’s portfolio does appear until the final version of its annual report which comes out around October (see under ‘The Giants’ tab at the top of this page for last year’s list). They include the PFA itself which manages a large part of its domestic bond holdings inhouse.

© 2017 Japan Pensions Industry Database/Jo McBride. Reporting on, and analysis of, the secretive business of Japanese institutional investment takes big commitments of money and time. This blog is one of the products of such commitment. It may nonetheless be reproduced or used as a source without charge so long as (but only so long as) the use is credited to www.ijapicap.com and a link provided to the original text on that site.

This blog would not exist without the help and humour of Diane Stormont, 1959-2012

 

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Banks’ securities investment portfolios contract by over 9%

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

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

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

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

© 2017 Japan Pensions Industry Database/Jo McBride. Reporting on, and analysis of, the secretive business of Japanese institutional investment takes big commitments of money and time. This blog is one of the products of such commitment. It may nonetheless be reproduced or used as a source without charge so long as (but only so long as) the use is credited to www.ijapicap.com and a link provided to the original text on that site.

This blog would not exist without the help and humour of Diane Stormont, 1959-2012

 

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Moves on pension obligations could spur corporate investment

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

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

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

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

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

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

© 2017 Japan Pensions Industry Database/Jo McBride. Reporting on, and analysis of, the secretive business of Japanese institutional investment takes big commitments of money and time. This blog is one of the products of such commitment. It may nonetheless be reproduced or used as a source without charge so long as (but only so long as) the use is credited to www.ijapicap.com and a link provided to the original text on that site.

This blog would not exist without the help and humour of Diane Stormont, 1959-2012

 

 

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Life cos’ allocations steady, Post supposedly set for change

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

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

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

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

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

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

© 2017 Japan Pensions Industry Database/Jo McBride. Reporting on, and analysis of, the secretive business of Japanese institutional investment takes big commitments of money and time. This blog is one of the products of such commitment. It may nonetheless be reproduced or used as a source without charge so long as (but only so long as) the use is credited to www.ijapicap.com and a link provided to the original text on that site.

This blog would not exist without the help and humour of Diane Stormont, 1959-2012

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