Noritz pension fund gains from overseas investment strategy

The corporate pension fund has low exposure to Japan’s booming stock market, but the portfolio benefited from currency gains abroad, its CIO says.
Noritz pension fund gains from overseas investment strategy

Having a portfolio focused on overseas markets has proven to be profitable to date, and Noritz Corporate Pension Fund is stocking up on cash to take advantage of a potential global correction in 2024.

Kiyoshi Iwashina
Noritz Corporate Pension Fund

In the year ending March 31, the pension fund made a return of 9.7%. The average performance of Japanese corporate pension funds, as reported in local media, was around 8%, putting his portfolios slightly above-average performance, according to a moderately pleased Kiyoshi Iwashina, Chief Executive Officer and Chief Investment Officer at Noritz.

“We are very pleased to have achieved the return while holding around 20% of our cash position. This is because achieving this level by actively managing about 80% of our assets in real terms is equivalent to achieving 1.25 times that level of performance in real terms,” Iwashina told AsianInvestor.

Reviewing the results of the past year, Iwashina found that investment in overseas assets turned out to be an important factor. The fund kept a heavy weighting on foreign fixed income and equities, and only a moderate weighting in domestic assets, even as the Nikkei 225 index, the Japanese equities benchmark, rose 43.9% in fiscal 2023.

Also read: Higher professionalism needed in Japanese corporate pensions: Noritz pension CIO

Behind this decision was the impact of the foreign-exchange market, where the US dollar has been appreciating against the Japanese yen. Unhedged investments were shown to be favourable for the Noritz pension fund.

“Based on a variety of factors, I believe that the current trend of a strong dollar against the yen is likely to continue over the long term, and I have moved to gradually increase our exposure to foreign assets. This currency factor is having a significant positive effect on our pension assets,” Iwashina said.

Japanese investors, especially those who invest in overseas fixed income, often hedge their exposure to foreign currencies due to fears of yen appreciation, a lesson learned from years past.

“However, current currency hedging costs are historically very high, to the point where they almost take away the return on investment in foreign fixed income,” Iwashina said.


In the year ending March 31, Noritz had 28.6% and 17.5% of the total AUM invested in foreign fixed income and equities, respectively, while domestic fixed income and equities only made up 5.9% and 1.8%.

Hedge funds and multi-asset investment accounted for 14.6% and 7.3%, respectively, while the rest of the AUM was in cash or short-term assets (20.2%) and the general account (4.2%).

Throughout year, Iwashina significantly reduced allocations to multi-assets investments and increased the level of short-terms assets to ensure higher cash holdings.

“The performance of multi-asset quantitative products was unsatisfactory due to the fact that the models were developed at a time when interest rates were low, and the models did not work well in the recent environment of high interest rates,” Iwashina said.

Cash holdings have been increased to ensure liquidity in anticipation of a correction in global financial markets. Iwashina told AsianInvestor in December 2023 that he did not agree with market expectations of the Fed lowering interest rates significantly in 2024, and that he was more concerned about inflation risk than the average market view.

Also read: Japan’s Noritz pension fund sees dark clouds in 2024

With his outlook intact, the fund is instead stocking up on cash to invest in global markets, which, Iwashina believes, will face turmoil and corrections for years to come. Long-term inflation will continue to create the potential for recession.

“We still need to fear the risk of a major price level adjustment, or decline, in the risky asset markets. When that will happen is, of course, not clear. But we are watching the financial markets for the risk of such a tragedy in the relatively near future,” he said.


Another main change in asset allocation over the past year has been a gradual reduction in the proportion of “general accounts”, a unique product offered by the Japanese life insurance industry to Japanese corporate pension plans.

The level of guaranteed yield has dropped to 0.25%, and even after considering expected dividends, it is no longer worthwhile to invest in this product when only a little over 1% can be expected, Iwashina stated.

“The recent fee charged for redemption has also made it even less attractive,” he said.

With turmoil potentially arising in global financial markets, the Noritz pension fund still finds hedge funds beneficial for its portfolio construction.

Hedge funds usually create moderate levels of returns regardless of market conditions, so we keep a considerable amount of allocation into this asset class,” Iwashina said.

Iwashina manages the defined benefits pension scheme with an annual return target of 3% for domestic employees at Noritz, a Japanese corporation primarily known for producing tankless water heaters for industrial and private home use.

At the end of the full-year 2023, Noritz Corporate Pension Fund had assets under management (AUM) worth ¥25.1 billion ($165.6 million).

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