GPIF opts for funds of funds for move into domestic real estate

The Government Pension Investment Fund is making its first move into domestic property investment via funds of funds vehicles and has mandated Mitsubishi UFJ Trust & Banking to advise on  implementing the “core strategy” for this part of its portfolio, according to an announcement on the Fund’s web site and an article in the Nikkei.

Realty and placement agency Asterisk takes up the subject noting, somewhat optimistically, “We expect their next announcement for managers for overseas real estate will have more impact for the market and more Japanese investors to follow suit”.

GPIF issued an RFP for the mandate just awarded in April when its intention to invest 5% of its portfolio in “alternative assets” was already well known. Property is indeed an alternative in the context of its portfolio which has historically been in bonds and equities.

While any move by the giant Fund into a new investment sector gives the country’s corporate pension funds some confidence to follow suit, this is not always the case. While GPIF’s equities holdings have expanded mightily under a significant re-allocation policy introduced two years ago, so far as can be seen from the available numbers those of corporate pension funds have been shrinking.

© 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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Japan third largest economy after India by 2030, USA still no.1

Another excellent report from the Japan Centre for Economic Research this time giving its mid-term forecasts for Asian Economies 2017-2030 and pointing up comparisons with Japan’s economic evolution.

A taste:

“The forecasts were compiled on the assumption that [countries’] ability to adapt to innovation, including digital technology, will have a significant influence on their economic trajectories.

“The high growth group will include the Philippines (6.4% in 2030), India (5.2%) and Vietnam (5.0%) over the next 10 years. China, which had nearly the same growth rate as India in 2016 — 6.7% — will slow down to 2.8% in 2030. Although China can count on high productivity growth, its capital stock adjustment is more advanced.

“Although China’s growth rate will decelerate toward 2030, its economic scale, which was about 60% of the U.S. in 2016, will approach 80% by 2030. But like Japan, which approached 70% of America’s scale in the mid-1990s, China will not be able to catch up with the U.S. — though it will get closer than Japan did at its peak.

“China will remain the second-largest economy, well ahead of Japan. In fact, it will be 4.4 times larger than Japan, widening the gap from 2.3 times in 2016. China can be expected to continue accounting for about half of Asia’s growth in the coming years.

“But India is set to take over China’s role as Asia’s main growth driver in the 2030s. India, whose economy was equivalent to about 50% of Japan in 2016, will surpass Japan in 2028 and be 1.2 times larger in 2030. Now the world’s seventh-largest economy, India is poised to move into third place.

“There are other looming shifts in economic power: Indonesia will catch up with South Korea around 2030. The Philippines will overtake Thailand in 2027 and also Taiwan in 2029. Malaysia will widen the gap with Singapore, and Vietnam will overtake Singapore in 2027. The center of gravity in Asia is shifting from the east to the south — India and ASEAN — both in terms of population and economic size.

“As for per capita income, Malaysia will become a high-income country in 2023, with nominal GDP per capita over $12,000. Two years later, China will also become a high-income country. But China will not catch up with Malaysia by 2030. Thailand is likely to fall short of high-income status.

“Indonesia will be an upper middle-income country in 2019, with GDP per capita of over $4,000. The Philippines will reach that level in 2022, with Vietnam following in 2028. The Philippines will overtake Indonesia in 2029. India will not yet reach the upper middle-income level despite its fast growth. Singapore will be the only Asian state to catch up with the U.S., widening the gap with Hong Kong and Japan. Hong Kong will pull further ahead of Japan, with South Korea gaining ground from behind”.

© 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 said to be ¥10tr up in Q3, start peformance fees in 2018

The Government Pension Investment Fund will begin introducing performance fees for mandates awarded to active managers of both domestic and foreign stocks and bonds from the start of the next financial year on 1 April 2018, according to a story in the Nikkei.

The newspaper report also includes an unattributed statement that GPIF “earned a record quarterly return of more than 10 trillion yen in the October-December period, thanks to the global stock market rally” though its results for the quarter have not yet announced.

The Fund plans to create the new fee structure “after meeting with each of the 50-plus companies that manage actively managed funds for the pension giant. Such factors as their investment styles and targeted returns will be taken into account when setting the fees.

“Under the new system, funds that achieve their predetermined investment return target will receive a similar level of fees as they receive now. If the actual return exceeds the target, however, they will be paid progressively more in proportion to the results.

“Missing the target will lead to lower fees, but even then, the payment will be comparable to the fees paid to passively managed funds sitting on a similar amount of assets. Investment returns will be evaluated using a time frame of three to five years, rather than looking at short-term returns.

“Actively managed Japanese stock funds used for GPIF assets did not earn their keep over the past decade, with their investment returns undershooting index growth by 0.04 percentage point despite the funds being paid higher than passively managed funds. The GPIF hopes performance-linked fees will change this around.

‘”We want to motivate fund managers to improve their investment management capability,” President Norihiro Takahashi said.'”

It would be nice if the Fund were to recognise in 2018 that when it makes information selectively available to favoured media, even before the news appears  on its own web site, it does not help make markets more efficient and honest — a goal to which it has repeatedly says it aspires and is trying to make fund managers responsible for achieving.

It is particularly strange that GPIF should favour the Nikkei when it is the lead offender in leaking the financial reports of companies listed on the Japan Stock Exchange before they  are made know to the market.

This is the sort of practice the Fund should be working hard to stop.

A list of who managed what investments for GPIF at the close of the financial year on 31 March 2017 can bee seen under “The Giants” tab at the top of 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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Steady Q2 for business and allocations at Tokyo fund managers

Tokyo’s asset management firms enjoyed a steady second quarter, figures from the Japan Investment Advisors Association show, with mandates in issue up 1.3% to 7,319 and assets under management rising 3.0% to 2,285,192 billion yen with a good part of that gain coming from rising stock markets at home and abroad.   Text continues below table

The numbers for domestic mandates cover mostly pensions business but that segment accounts for only around 6% of the business from abroad. Text continues below table

At the close of the quarter on 30 September each mandate in issue covered an average of 312.2bn yen in assets but the wide difference remains between those awarded by public pensions (including the Government Pensions Investment Fund which handles  the contributions of the populace to the national basic pension) and those from company-based schemes.

Each public mandate represented assets of 201.9bn yen at the end of the term compared with 6.2bn yen for each private mandate. However the fees on the former are wafer-thin.

Asset allocation also held steady with a slight rundown of amounts in ‘short-term’ investments except for those in Asia which rose mightily but from a very low base.

© 2017 Japan Pensions Industry Database/Jo McBride. Reporting on, and analysis of, the        (text continues below table).

              

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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First half profits up, assets down at Japan Post Insurance

Investment income at Japan Post Insurance in the first half of 2017/18 was 5.5% down year-on-year to 640.9 billion yen, reflecting a 2.11% drop in the value of its assets under management to 78,639.3bn yen, even as its net profits rose 22% to 51.2n yen on an increase in premiums for medical, cancer and long-term care cover.

Asset allocation remained much the same with the only noticeable shift a rise from 7.5% to 8.7% in the proportion of the portfolio accounted for by “foreign bonds etc … which includes foreign-currency-denominated bonds and investment trusts recorded under Japanese corporate bonds and other securities, respectively, on the balance sheet”.’At least half this climb happened in the first (April to June) quarter of the 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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GPIF signs up Sony to study impact of AI on asset management

Sony Computer Science Laboratories will partner the Government Pension Investment Fund in studying how artificial intelligence can contribute to GPIF’s long-term asset management, according to an announcement on the Fund’s web site.

In addition the tie-up will look on an industry-wide basis at;

  • The impact of AI on asset managers’ business models and their consequent evaluation methodologies;
  • How AI technologies can be used to reinforce long-term investments decisions, including via dynamic factor analysis and scenario-based risk management;
  • The possible use of AI technologies to reconcile asset manager’s explanations of their investment decisions with the actual track of trading data.

The selection of Sony Computer Science Laboratories follows the issue of a request for proposals on the matter 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, 1959-2012

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GPIF’s vision may be clearer than conveyed in interview

Two articles in US publication Pensions & Investments, based on a 13 November interview with GPIF’s chief investment officer Hiromachi Mizuno, look at how GPIF hopes to use size as way to enhance beta and how it is helping overseas managers navigate Tokyo.

The first seems to indicate that the Fund has given up hope of managing equities inhouse and the team is focussing instead on promoting “more long-term decision-making by owners, asset managers and listed companies” so as to improve the overall investment climate, and on supporting “leading asset managers to set up shop in Tokyo” in order to bring about “systemic improvements that wouldn’t typically appear on an asset owner’s to-do list”.  Hmmm.

The interviewer seems not to have probed any of what was said by, for instance, asking how a reported drive to make English GPIF’s second working language is resulting in ever-lengthening delays between publication of an announcement in Japanese and its English translation.

There is also no acknowledgement of the very large number of foreign firms which have been doing fully authorised business in Japan for decades and of the leading role they played in developing the asset management industry from 1995 when it was first allowed to operate independently of trust banks and life insurers.

Potentially more interesting is that if greater use of English means no need for translators at meetings between the Fund and “foreign” potential service providers, then, it is claimed, there will be no need for the overseas entities to use Japanese “gatekeepers”.

The use of this terminology throws up numerous definitional problems.

First, as already noted, there are many “foreign” firms doing business in Tokyo where they are manned largely by Japanese nationals. While a firm from abroad can do business in the country without a licence, convention and courtesy require that it acquires one.

Second, the term “gatekeepers” implies a role far beyond that of “door openers”. Those  who play the latter role are typically either the Tokyo offices of foreign firms which also market the specialist skills available from their non-Japanese offices, or trust banks facilitating introductions in their role as pension fund sokanji (or administrators).

The former includes the revenue-earning services offered by the same sokanji in setting up and running separate trusts which, once a mandate is awarded, do the custody and other administrative arrangements needed to support the investment activities taking place under it.

If GPIF were to dispense with this trust role, or even push for a greater number of entities being allowed to undertake it, that would be a revolutionary move. To achieve it, though, Mr Mizuno would have to go up against the likes of Mitsubishi UFJ Trust & Banking and Sumitomo Mitsui Trust Bank protecting their profits. That is probably not a task even he would relish — especially when he can achieve his ends without it.

© 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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Companies setting up captive foundations to hold own shares

Excellent story on Bloomberg notes that companies are swerving round even the mild anti-cross-shareholding stipulation in the Stewardship Code — which states they should explain why they keep such arrangements — and continuing to ensure a compliant ownership base by setting up foundations to which they transfer shares they have recently bought back from the market using their excess cash.

Examples include DMG Mori Co, Daiken Medical Co, sportswear maker Goldwin Inc, Kobayashi Pharmaceutical Co, Toyota Motor Corp and KDDI Corp.

Institutional investors would prefer that spare cash be distributed to them. Among the reasons floated for this not happening has been the notion that companies may be nursing losses on their pension funds which they will need to top up before the consequent underfunding is exposed in annual accounts to the 30 March year-end.

Having a pension fund stuffed with its sponsors’ own shares is a practice frowned on by  the Ministry of Health, Labour and Welfare, the corporate retirement scheme regulator.

© 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 use artificial intelligence in managing assets from 2018

“The Government Pension Investment Fund is considering using artificial intelligence technology to manage its assets” according to a Jiji Press report in the Japan Times which relies solely on what unnamed “sources have said”.

The article notes that “In the United States, firms including BlackRock Inc and Goldman Sachs are already using AI in asset management”. However both of these are intermediaries, not asset owners, and the report does not make clear whether GPIF will be applying AI to portfolios managed inhouse or favouring outside asset manages which use it.

“The organization aims to introduce the technology on a trial basis as early as fiscal 2018, which starts in April next year, the sources said.”

© 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 adding more firms to its transition managers roster

The Government Pension Investment fund is seeking an additional transition manager for the 21.98 trillion yen overseas bond portion of its 156.81tr yen portfolio according to an announcement — so far in Japanese only — on its web site.

The appointee will join BlackRock Japan which was appointed to similar duties in April 2015 (See archive 2015-4-3).

For further information contact admin-6i@gpif.go.jp.

Separately, GPIF announced it had hired Russell Investments Implementation Services LLC, via Russell Investments Japan, as a transition manager for domestic equities and for foreign equities BlackRock Asset Management North Asia, via BlackRock Japan.

The former joins Nomura Asset Management and BlackRock Japan Co Ltd (again with BlackRock Asset Management North Asia as “subcontractor”), also in place since April 2015, while the latter will be alongside Russell Investment Japan (with Russell Implementation Services Inc as subcontractor) appointed at the same date.

© 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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