Japan’s Chikyoren shifts on allocation, outsourcing

Japan’s Pension Fund Association for Local Government Officials is shifting more of its portfolio management in-house and allocating less to government debt, according to the Japan Pensions Industry Database (www.ijapicap.com/blog).

With assets of ¥15.85 trillion on March 31 ($191.5 billion at the time), Chikyoren is the seventh largest pension fund in the world and the biggest in Japan after the Government Pension Investment Fund, according to Towers Watson.

At March 31, Chikyoren had handed mandates worth ¥9.09 trillion to 19 fund managers and five trust banks and parked just ¥3.12 billion with three life insurers.

That means 57.3% is now run by external asset managers and 20.3% is done in-house, a significant change from 39.1% and 7.9%, respectively, in 2003. That said, the in-house portion was even higher in 2009, at 22.7%, when 50.1% was outsourced.

GPIF and the Pension Fund Association are even bigger on in-house management, with GPIF handling just over 30% of its own portfolio and the PFA 40%.

This year it says it has chosen Diam, Nissay Asset Management and Sumitomo Trust Bank to handle active Japanese equity investments. All three firms were already on its roster.  

In common with GPIF, Chikyoren once had to commit a large slab of its portfolio to government debt – especially zaito bonds, issued by the Fiscal Investment and Loan Program and used to finance the nation’s so-called second budget.

But this commitment has fallen dramatically since 2003 when it was, at ¥12.96 trillion (then $109.77 billion), 50.5% of the total of ¥6.55 trillion. Today it is down to ¥3.5 trillion.     

Apart from this requirement, Chikyoren’s asset allocation, agreed with the Local Administration Bureau of the Ministry of Internal Affairs, has changed very little, notes JPID. It stands at 60.9% domestic bonds, 15.4% Japanese stocks, 10.1% foreign bonds, 12.1% foreign equity and 1.4% short-term – very close to what it was in 2006.