TOKYO -- Hitachi Investment Management Ltd., Hitachi Corp.'s pension money management arm, could become a model for investing corporate retirement plan assets if Japan Inc. adopts defined contribution plans.
Started Feb. 1, the unit is the first investment subsidiary to manage a group's pension assets internally in Japan.
Using a series of investment trusts, the 20-person staff will oversee the investment of 2 trillion yen ($18.3 billion) in pension assets, of which 1 trillion yen are held by Hitachi's flagship unit and the remainder by 270 subsidiary funds.
The firm uses a series of investment trusts for each asset class -- a system that could easily lend itself to defined contribution plans.
Hiroshi Maruta, Hitachi Investment's new president and chief executive officer, believes such plans will catch on in Japan in the next three to five years.
It remains to be seen, however, if other Japanese companies will create their own investment subsidiaries.
Takahisa Tanaka, executive director of Fujitsu Ltd.'s pension fund, remains skeptical, saying it would be wise to leave money management to the pros.
"Considering the initial investment needed to set up an investment management subsidiary, we doubt it will pay," he said.
However, Tetsuro Taira, analyst at the Nikko Research Center Ltd.'s pension research and consulting division, said "several firms . . . are now seriously looking into this new option."
Toyota Motor Corp., which plans to expand into financial services, has been discussing a plan to set up an in-house investment arm with its labor unions since April. Matsushita Electric Industrial Co. Ltd. has been rumored to be looking to do the same, but the company's spokesman denied the rumors.
"To set up an in-house investment unit to manage the group's pension funds, a parent company's top management must have sophisticated asset management policies and wield a strong leadership within a group. Also there should be a strong unity among subsidiaries," Mr. Taira added.
Mr. Maruta, the youngest president of 1,033 Hitachi group subsidiaries, said Hitachi decided to set up a money management arm modeled after those of General Electric Co. and General Motors Corp., after concluding that it is inefficient to let each subsidiary manage its own pension assets.
"Many of our subsidiary funds are too small to be run through international diversified investment trusts, for example. Also many cannot afford to hire professional investment advisers either," he said.
Hitachi Investment creates private mutual funds for Hitachi's various pension funds, covering investments in Japanese equities, Japanese bonds, international equities and international bonds.
Initially, Hitachi Investment officials plan to manage the 10% to 20% of Hitachi's consolidated pension assets that are invested in Japanese equities.
It will use a manager-of-managers approach for other asset classes. Those mandates will continue to be outsourced to 30 external managers of which five are foreign, including J.P. Morgan Investment Management Co. and Merrill Lynch Mercury Asset Management Japan Ltd., Mr. Maruta said.
"By taking advantage of a framework of investment trusts, we can collect pension assets of the group's small subsidiaries and run them through commingled funds," he said. "In this way, small funds can use our firm as a manager-of-managers program to improve the performance and learn more about pension asset management."
Hitachi officials will monitor daily performance via a system modeled after a master trust arrangement. One custodian will integrate the data, Mr. Maruta said. He would not name the bank.
"With this system, we can administer corporate pension plans via integrated custody accounts and supply all our clients with the unified daily data based on the market cap each day," he said.
An outsider checking daily performance "will be extremely tough for Japanese fund managers," Mr. Maruta said, but he believes rationalization of investment management is vital to improve Hitachi group's corporate earnings situation.
Mr. Maruta has strong confidence in the new manager team, which will be headed by Sumio Sakamoto, a former Japan equity specialist at Nomura Asset Management Co. Ltd.
So far, Mr. Maruta has recruited four fund managers, who all are Japanese. He plans to expand the team to seven by April. Mr. Maruta also acknowledges there is a plan to introduce alternative investment trust products.
Mr. Maruta said his firm will concentrate on managing the pension funds of only Hitachi group firms.
Even within Hitachi, the introduction of defined contribution plans should be decided after a consultation with the labor unions, and this negotiation has not even started, he said.