Daiwa pension client demands S&P benchmark

The S&P/Topix 150 equity index in Japan has notched its first pension fund to benchmark against it.

Last year Standard & Poor's, the creator of the Topix 150, was approached by Daiwa Bank, which manages pension assets. Daiwa said it had a corporate pension client that had demanded Daiwa design a portfolio benchmarked against the new index. Daiwa has not revealed the name of its client, but according to David Collins, vice president of index services at S&P in Tokyo, "It is said to be one of Japan's most innovative plan sponsors, one that does its own research."

This mystery client realized that over a 10-year period, the Topix 150 consistently outperformed the cumbersome, 1,400+ stock Topix index by around 20%. S&P also has developed futures contracts and exchange-traded funds based on the Topix 150. The index's constituents are 150 actively traded, liquid blue chip stocks representing 10 major sectors, and cover 70% of the free-float adjusted capitalization of Topix, which remains the standard for Japanese institutional investors.

Daiwa itself is an unusual asset manager, as it is the only large city bank in Japan that has essentially ignored the Ministry of Finance's preference that such banks stay out of this line of work. But Daiwa has a successful trust bank operation.

"This is the first fund to benchmark against our index," Collins says, "and we think there'll be more. It takes a while for people to do the due diligence and to go with something that's untested. We hope this mandate will ignite more business."

Business links can often determine such shifts in Japan. Daiwa Bank has merged with Kinki Osaka Bank and Nara Bank into Daiwa Bank Holdings in December 2001, while Asahi Bank and Daiwa Trust & Banking are considering joining the new entity.