Higher professionalism needed in Japanese corporate pensions: Noritz pension CIO
Japanese corporate pension funds must become more professional, according to Kiyoshi Iwashina, Chief Executive Officer and Chief Investment Officer at Noritz Corporate Pension Fund.
Corporate pension CIOs, along with other executives, are often recruited from amongst a corporation’s staff, rather than from people with investment or asset management backgrounds.
“Usually in Japan, people will stay within the same company, but doing many different roles. In Japan, professionalism is very difficult to achieve, while generalists on the other hand are very respected in society,” Iwashina told AsianInvestor.
Iwashina manages the defined benefits pension scheme for domestic employees at Noritz, a Japanese firm primarily known for producing tankless water heaters for industrial and private home use. The scheme has an annual return target of 3%.
As of the end of the latest fiscal year (FY2022), Noritz Corporate Pension Fund had assets under management of ¥22.7 billion ($170.4 million).
The current government aims to convert Japan into an “Asset Management Nation” and one focus is to upgrade the skills of asset owners and corporate pension schemes in particular. This would further the country’s ambitions to become an increasingly attractive financial market and a leading asset management center.
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To achieve this, the Cabinet Secretariat, a top policy coordination body, is pushing reforms for corporate pension funds, according to the report “Plan to Realize an Asset Management Nation” released in December 2023.
Iwashina emphasised that the situation differs from one corporate pension plan to another among the roughly 13,000 corporate pension funds in Japan.
FINANCIAL LITERACY
However, the Japanese public has a very low level of financial and asset management literacy compared to Europe and the US, he added.
Iwashina has been the CEO and CIO of the Noritz Corporation Pension Fund for more than a decade.
Before this, he worked for nearly 30 years at a Japanese life insurance company, fitting the stereotype of a Japanese employee who stays with the same corporation for many years, or even for their whole career.
However, Iwashina was exclusively focused on investment activities and portfolio management. In addition, his career includes a four-year stint in London, where he gained firsthand knowledge of overseas markets.
“I am trained and experienced within the financial market and actual investment activities, but this is a very rare case. Compared to this professional profile, the overall literacy level of corporate pension funds regarding finance and asset management is still very low,” Iwashina said.
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Current policies related to pensions are also in many respects muddled, Iwashina said.
Corporate pensions are highly regulated with respect to single-year investment performance, even though they should aim to invest for the long term.
“The government says the right thing, of course, but in my opinion, it is a little bit unrealistic in terms of actual pension plan activities,” Iwashina said.
Meanwhile, corporate employees pay lower taxes if they take a one-time, lump-sum payment upon retirement than if they were to opt for annuities. This behaviour causes concentrated one-time drains on funds, rather than smaller payments spread out over years.
LIKE GAMBLING
In recent years investment officers with professional skillsets have been increasing in the Japanese pension field, but Iwashina still sees the penetration as being very limited.
“I think it might take a long time to get to a point where overall performance will be lifted,” he said.
Therefore, in addition to calling for corporate pension reform, the government may have to consider starting basic education on finance and asset management at an early age, he suggested.
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For a long time, investing in equities was almost considered to be the same as gambling in Japan, Iwashina recalled.
“This is a Japanese specific culture,” he said. “Many average Japanese people still have such conception of investing in the equity market. This is another headache for investment education.”
As of FY2022, the Noritz corporate pension fund had 14.8% and 15% of the total AUM invested in hedge funds and multi-asset investments, respectively. Fixed income and equities made up 32.3% and 16.4% respectively, while the rest of its AUM was in cash (13%) and general account (8.5%).