TOKYO -- The 308 billion yen ($2.6 billion) pension fund of Tokyo Electric Power Co. is increasing its equity exposure to 40% of assets from 25%.
As much as half the increase will be allocated to non-Japanese equities, bringing the total foreign equity allocation to 20% of total assets.
In addition, it has hired three new trust banks and 13 new money managers.
Investment performance -- a return of just 1.5% in the 12 months ending Sept. 30, 1998 -- was the reason for the shift, announced April 19, said Michio Sato, deputy general manager of TEPCO's accounting and treasury department.
"We had been conservative, too conservative, in sticking to the old 5-3-3-2 formula for pension investment after the government ended that requirement," Mr. Sato said. He was referring to the traditional allocation ceilings of 50% domestic government bonds; 30% foreign government bonds; 30% domestic equities; 20% foreign equities.
"And the 10 life insurers and 12 trust banks managing our . . . pension assets were not bringing in returns that would enable us to meet projected obligations," he added. "We looked at what some other Japanese companies were doing, especially those with, shall I say, a more 'progressive' approach to fund management, and realized we had to follow suit if we were to meet our obligations to employees."
Japan's largest utility added three new trust banks -- J.P. Morgan Trust Bank Ltd., Deutsche Morgan Grenfell (Tokyo) and Barclay's Trust and Banking Co. (Japan) Ltd. -- and 13 asset management firms -- including Fidelity Investments, Goldman Sachs & Co. and Nomura Asset Management Co. Ltd.
Mr. Sato declined to name the other new money managers. Nor would he specify how much each manager would be allocated.
He expressed confidence the new mix would enable the company to meet its target return of 4%, while minimizing investment risk.
As in the past, TEPCO's money managers will have discretion over investment decisions."TEPCO always left investment decisions to the companies managing our pension assets and basically still does so," Mr. Sato said.
"We think we've selected a strong, professional corps of asset managers and we're quite comfortable letting them make the decisions. That's their job," he said. "Our only concern is meeting the investment return we need to guarantee the money is there for our employees when they reach retirement age."
Like most other Japanese corporations, TEPCO supplements its government-mandated corporate pension program with a separate retirement allowance program that does not come from the company's pension reserves. Employees typically take their allowances in a lump sum (for tax benefit purposes) upon retirement.
Such allowances are not mandated by the government and -- unlike pension funds -- do not have to be segregated funds and are not federally protected.
But like most other firms, TEPCO has failed to keep reserves for that allowance topped up. Current Japanese accounting standards have allowed companies to in effect ignore this liability, and most firms have done so, expecting economic growth to take care of the problem down the road. But revisions to take effect next March will bring accounting into line with U.S. standards, requiring companies to recognize all retirement liabilities on their balance sheets.
As of Sept. 30, TEPCO listed 137 billion yen in reserves for retirement allowances, about 61 billion yen short of what will be required once the new accounting standards are in effect in April 2000, Mr. Sato estimates. The company intends to make up about half that shortfall with an injection of cash by September 2000.