Japan’s PFA brings record 40% of savings in-house

Japan’s Pension Fund Association (PFA) has brought 40% of its retirement savings under house management – a new record in proportion terms, according to its annual report released yesterday.

Meanwhile, money managers had six mandates terminated or not renewed in the year to March 31, and three were signed up for the first time or won additional business.

The ¥10 trillion ($128 billion) association managed 58% (or ¥3.4 trillion) of its ¥5.9 trillion bonds portfolio in-house, of which ¥2.8 trillion was in domestic paper and $596 billion in foreign bonds.

The body’s small emerging markets debt fund also seems to be managed by staff, notes the Hong Kong-based Japan Pensions Industry Database, which first reported the news on an affiliated blog.

Of the association’s stock portfolio, 13.5% (or ¥558 billion) of its ¥4.1 trillion equity portfolio is managed in-house, all of it in domestic stock.

It means the proportion of funds under internal control is now at a record level, even though the amount is similar to 2005/06 when it held total assets of ¥13.1 trillion.

The yield for 2010/11 was -0.52%, not far off the Government Pension Investment Fund’s -0.25% but a sharp contrast with the 17.9% achieved in 2009/10 – which itself was a reversal after two years in which it recorded -9.91% and -18.34%.

Overall the portfolio consisted of 58.2% of bonds and 41.2% of stock, with the miniscule remainder in real estate and private equity. However, in May, AsianInvestor reported that the association’s CIO Daisuke Hamaguchi said the PFA was looking to broaden its portfolio of alternative investments.

The PFA is Japan’s seventh largest institutional investor and solely manages the accumulated contributions of members of disbanded or bankrupt Employee Pension Funds and of people who left their employer’s retirement plan when they had changed jobs.

In the past year it devised a system based on its funding ratio: anything below 100% and the equity-to-bonds split is 40:60. With each 5% improvement in funding the allocation to equities falls by 5%. At 115% funded the split will be 20:80.

In the past financial year, the funding ratio was 91%. It compares with 76.5% two years earlier after the collapse of Lehman Brothers and 111.6% two years before that when the amount managed in-house was almost as large as now.

Invesco joined the roster of managers holding domestic stock mandates, while Chuo Mitsui Trust & Banking and Morgan Stanley Asset & Investment Trust Management departed from the same list (although the former remains on the rosters for both foreign stock and domestic bonds).

Mitsubishi Trust & Banking, meanwhile, left the domestic bond segment but continues in both domestic and foreign equities.

State Street Global Advisors and UBS Global Asset Management also exited the foreign stock component, which has signed up Alliance Bernstein and Natixis Asset Management Japan.