Japan’s corporate pensions plot investment shifts
Japan’s corporate pension funds are pursuing a wide range of strategies for 2020 as they differ in their responses to the coronavirus outbreak, investment managers at funds with defined benefit schemes told AsianInvestor.
While the pandemic has had an impact on their investment strategies for the year, and might hit defined contribution schemes even harder, the country's pension funds still need to strategically deploy capital with a long-term view.
Take Kewpie Pension Fund, the corporate retirement fund for the food manufacturer best known for its mayonnaise, for example.
“At the moment there is no plan for this year at all. I may start to look for long-term equity investments [due to the current low markets], and distressed assets if circumstances allow. But today, it's too early to decide anything,” said Kosuke Okimori, Kewpie Pension Fund’s executive investment director.
The fund had assets under management (AUM) of $68.2 billion at the end of 2019. The surplus build since its current fiscal year started in June 2019, however, is likely to have been wiped out during February and March, according to Okimori who is a large proponent of alternative assets.
“Since the middle of February, I have had an impression that alternatives related to hedge funds are very bad. Equity long, short and market neutral are doing all right, while multi-strategies have become worse,” he said.
Japan had 12,847 corporate pension funds as of July 1 last year, according to data from the country’s Pension Fund Association. Of those, 40% of corporate pension funds have less than ¥10 billion ($92 million) of AUM while another 40% have between ¥10 billion and ¥50 billion.
AFRICA ON THE RADAR
Not all investment managers are giving their 2020 investment strategy an overhaul.
Okayama Metal & Machinery Pension Fund and West Japan Metal & Machinery Pension Fund intend to pursue some new investments as scheduled.
“We will be looking into Africa trade finance and convertible arbitrage. These are areas where business is growing, and we also see fewer investor and money managers than 10 years ago,” said Yoshi Kiguchi, the chief investment officer of the two funds.
Convertible arbitrage typically involves taking a long position in a convertible security and a short position in the underlying common stock to capitalise on pricing inefficiencies between the convertible and the stock.
Kiguchi is known for pursuing an unusual investment strategy in Japan, heavily relying on illiquid assets in alternatives. It allocates around 90% of the funds’ combined $1.2 billion AUM into such assets. But with the coronavirus pandemic weighing in on the year, he also sees potential profitability in equity markets.
As a result, Kiguchi expects to allocate less to credit markets and favoured illiquid assets such as alternatives. He said that this is an attempt to “avoid the bubble” in the asset class, referring to the increasing demand for such assets from institutional investors across the world.
STICKING TO THE PLAN
At Aisin Employees’ Pension Fund (Aisin), the policy asset mixture continues to be the guiding light for investments in 2020. The Aichi-based fund, which manages the pension savings for employees at auto parts industrial manufacturer Aisin Group, reviews this mixture every five years, and last did so in 2017.
“We will especially be looking at bank loans, high yield bonds, REITs [real estate investment trusts] and infrastructure. This is all according to our policy asset mixture,” said Hiroshi Sumiya, managing director and director of investment at Aisin.
He elaborated that Aisin expects to maintain its investment strategy according to its policy asset mixture. The fund invests roughly 55% of its portfolio into fixed income, 30% in alternatives and 15% in equities.
“We will also look at non-life insurance-linked investments. This is to balance the weight between non-life insurance-linked and life Insurance-linked investments within our portfolio,” Sumiya said.
He declined to reveal the Aisin fund’s current total assets under management, though his predecessor, Hisashi Hatta, told Asianinvestor in July last year that the fund had ¥205 billion in pension savings.