Domestic bias helps Japan's Kewpie Pension Fund weather the storm

The corporate pension fund has seen a relatively good performance in 2022 so far. But the future holds a lot of challenges, its investment director tells AsianInvestor.
Domestic bias helps Japan's Kewpie Pension Fund weather the storm

With a portfolio heavily allocated to domestic assets, Kewpie Pension Fund has so far weathered the worst of last year's storm in global markets.

The namesake corporate retirement fund for the food manufacturer best known for its mayonnaise manages two funds with total assets under management (AUM) of around ¥70 billion ($471 million).

The two funds had an annual return of 2.2% and 1.9% respectively for the financial year ending May 2022. That performance should be seen in the light of a target return of 3.5% gross and 3% net.

Kosuke Okimori,
Kewpie Pension Fund

“The performance in the recent fiscal year was not perfect, but considering the circumstances it was okay. The weak yen helped to ensure the positive result,” Kosuke Okimori, managing director at Kewpie Pension Fund, told AsianInvestor.

One major reason for the positive performance is that Kewpie Pension Fund as a Japanese asset owner has a relatively large exposure to domestic equities. The Japanese stock market over the period has performed relatively well compared with the US and European markets.

For instance, as of October 21, the Nikkei 225 index was down 4.72% year-on-year, while the US S&P 500 index was down 16.15% for the same period.


In general, Kewpie Pension Fund has a foreign currency exposure of about 15-20% of total AUM, relatively low compared with its peers.

The fund's relatively large exposure to Japanese equities market provided something of a safe haven thanks to the steady low interest rate approach from the Bank of Japan. Nevertheless, this policy has increasingly coming under pressure due to a dwindling yen and rising inflation.

Overseas fixed income investments, meanwhile, have been performing “terribly” for Kewpie Corporate Pension, both for credit and sovereign bonds, Okimori said adding that the decrease in value for the fixed income portfolio has created a problem.

Kewpie Pension Fund targets fixed income at 45% of its total portfolio, plus or minus 10%. Currently, that share has dropped to 35%, the lowest end of the band.

“Although our investment strategy says we should rebalance our fixed income allocation, it is not an attractive asset class right now. The interest rate is still very low in Japan, and overseas we face currency-hedging costs. It is strange situation that we have to accept,” Okimori said.


Okimori intends to boost the fund's share of alternatives and private assets, excluding hedge funds, which currently stands at 18% and 20% respectively of the AUM. He is currently seeking his investment board’s approval to increase the share of alternatives to up to 25%.

The current cash flow and investment returns from overseas alternative investments are coming back in foreign currencies, which helps to boost income in a low-yen/inflation environment. However, Okimori aims to keep liquidity at around 50% which creates a dilemma in the current market.

“I must be careful about liquidity, and that leads to hedge funds. Looking ahead, I don’t know if fixed income or equities will be better. With the war in Ukraine, inflation has been taking off, but it looks like the US economy will soon be struggling, so the Fed will stop or slow the interest rate hikes,” Okimori said.

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