TOKYO - The 300 billion(Y) (U.S. $2.5 billion) pension fund of IBM Japan Ltd. is planning an asset/liability study that would help it take advantage of what appears to be imminent deregulation of tax qualified pension plans.
IBM Japan's pension fund is said to be Japan's largest tax qualified plan, and any moves by its management are expected to be closely watched in Japan's pension community.
If investment deregulation of TQPPs - scrapping the strict 5-3-3-2 rules - occurs as expected April 1, it seems likely IBM Japan will be among the funds seizing the opportunity quickly.
IBM Japan already has its eyes on a higher equity exposure and perhaps an increase in foreign bonds. For example, an asset/liability study in 1995 - before deregulation was in the offing - suggested that, in a deregulated environment, the fund could have nearly 70% in equities. Other asset recommendations of that study were not disclosed.
For IBM Japan, more stock investments might seem fitting because "ours is a young fund - it's not so mature - and can take more risk," said Akihiko Ohwa, manager of financial projects in the treasury unit of IBM Japan.
The work force's average age is 36. Although the ratio of pensioners to active workers was not available, Mr. Ohwa said that the company has more than 20,000 employees. Mr. Ohwa described the plan as "adequately funded."
Under the current 5-3-3-2 rules for TQPPs, an equity exposure of as much as 70% would not be permissible. According to the rule, each portfolio of a TQPP must have at least 50% in principal-guaranteed assets; in addition each portfolio can have no more than 30% in domestic equities, 20% in foreign securities and 20% in real estate. IBM Japan currently has 30% in Japanese stocks and 12% to 13% in foreign equities, said Mr. Ohwa.
The fund also has 32% in domestic bonds, about 5% in foreign bonds, around 12% in convertibles, and at year's end, approximately 5% in cash.
In comparison, the $32.9 billion defined benefit pension plan of
IBM Corp. in the United States had 61% in equities, 28% in fixed income, 4% in real estate and 7% in other investments as of Sept. 30 (Pensions & Investments, Jan. 20).
As of April 1, Japan's Finance Ministry is expected to abolish the 5-3-3-2 rule for tax qualified pension funds, which are generally the smaller funds in Japan.
While it still appears unlikely the ban on using investment advisers will be lifted April 1, various observers do expect the prohibition to be dropped during the fiscal year that begins then.
IBM Japan isn't looking to increase its managers, which now number 21, Mr. Ohwa said. In-house staff limitations prevent the fund from being able to oversee many more managers, he said.
But a more aggressive investment policy does seem likely to emerge. To assess how to take advantage of deregulation, the fund expects to launch in April an asset/liability study that's likely to take about two months. Mr. Ohwa said he imagines the study could produce at least some of the same results as the 1995 study.
In turn, a boost to the equities content possibly could come from domestic bonds, convertibles and some cash, he said.
Of IBM-Japan's 21 current managers, 12 are trust banks - including four that are foreign-based - and nine are life insurance companies in Japan. Although Mr. Ohwa would not name the managers, he did say three of the four foreign trust banks had parents based in the United States and one had a parent based in Switzerland.
If investment advisers remain barred from managing TQPP assets, IBM Japan could still make investment changes, Mr. Ohwa believes. In his personal opinion, for example, "if we want a higher foreign content we could (more heavily) use foreign-based trust banks in Japan."
Given the currently weak Japanese equity market, would investing more in domestic equities sometime soon be fruitful?
"In the current situation, many people may be negative on the Japanese stock market. But pension funds are long-term investors," Mr. Ohwa said. "I am optimistic about the long-term prospects for Japan's market." In fact, he noted that if the market started heading higher, it would turn out that "now would be the best time to be buying."
But if IBM Japan decides it is not comfortable with Japanese equities at a certain time, it could postpone increasing its holdings, he noted.