Skip to main content
MENU
Subscribe
  • Subscribe
  • Account
  • LOGIN
  • Topics
    • Alternatives
    • Consultants
    • Coronavirus
    • Courts
    • Defined Contribution
    • ESG
    • ETFs
    • Hedge Funds
    • Industry Voices
    • Investing
    • Money Management
    • Opinion
    • Partner Content
    • Pension Funds
    • Private Equity
    • Real Estate
    • Russia-Ukraine War
    • SECURE Act 2.0
    • Special Reports
    • White Papers
  • Rankings & Awards
    • 1,000 Largest Retirement Plans
    • Top-Performing Managers
    • Largest Money Managers
    • DC Money Managers
    • DC Record Keepers
    • Largest Hedge Fund Managers
    • World's Largest Retirement Funds
    • Best Places to Work in Money Management
    • Excellence & Innovation Awards
    • WPS Innovation Awards
    • Eddy Awards
  • ETFs
    • Latest ETF News
    • Fund Screener
    • Education Center
    • Equities
    • Fixed Income
    • Commodities
    • Actively Managed
    • Alternatives
    • ESG Rated
  • ESG
    • Latest ESG News
    • The Institutional Investor’s Guide to ESG Investing
    • ESG Sustainability - Gaining Momentum
    • Climate Change: The Inescapable Opportunity
    • Impact Investing
    • 2022 ESG Investing Conference
    • ESG Rated ETFs
  • Defined Contribution
    • Latest DC News
    • DC Money Manager Rankings
    • DC Record Keeper Rankings
    • Innovations in DC
    • Trends in DC: Focus on Retirement Income
    • 2022 Defined Contribution East Conference
    • 2022 DC Investment Lineup Conference
  • Searches & Hires
    • Latest Searches & Hires News
    • Searches & Hires Database
    • RFPs
  • Performance Data
    • P&I Research Center
    • Earnings Tracker
    • Endowment Returns Tracker
    • Corporate Pension Contribution Tracker
    • Pension Fund Returns Tracker
    • Pension Risk Transfer Database
    • Future of Investments Research Series
    • Charts & Infographics
    • Polls
  • Careers
  • Events
    • View All Conferences
    • View All Webinars
    • 2022 Retirement Income Conference
    • 2022 Managing Pension Risk & Liabilities
    • 2022 WorldPensionSummit
Breadcrumb
  1. Home
  2. ASSET OWNERS
November 24, 2014 12:00 AM

Corporate Japan might take lesson from GPIF

Company plans could follow public fund's lead, employ more aggressive investment stance

Douglas Appell
  • Tweet
  • Share
  • Share
  • Email
  • More
    Reprints Print
    Akiko Nakamura
    Kiyoshi Murase said corporate pension funds need to step up and expand their role to help strengthen Japan's retirement system.

    The Government Pension Investment Fund's recent shift to more aggressive investment targets could be followed soon by significant reforms to Japan's corporate retirement system.

    The eighth annual Global Pension Symposium, sponsored by Pensions & Investments and Nomura Securities in Tokyo Nov. 11-12, began with calls for policy changes to help corporate defined benefit and defined contribution plans become sturdier pillars of Japan's retirement system.

    The economic implications — direct and indirect — of pension reforms have given efforts to bolster the system a political tailwind from the government of Prime Minister Shinzo Abe. He swept to power two years ago on the strength of his pledge to do anything needed to lift Japan's economy from a stubborn deflationary spiral, even as it contends with a mid-year recession.

    With the ever-increasing burden on Japan's public pension plans, and retirement benefits accounting for as much as 30% of consumption outlays in some parts of the country, “the role of corporate pensions has to expand,” Kiyoshi Murase, president of Japan's Pension Fund Association, told an audience that included 238 representatives from corporate defined benefit and defined contribution plans.

    In separate presentations, Mr. Murase and Koji Kakigi, chairman of the pension subcommittee of the Japan Business Federation’s committee on social security, detailed progress of ongoing talks with Japan’s government on topics such as expanding limited tax treatment at present for DC plans.


    While a growing number of Japanese companies have added defined contribution plans for their employees or switched to DC from DB over the past year or two, monthly contributions are currently limited to ¥55,000 ($473) for firms that only offer DC and half that total for firms that offer a DB plan as well. That constraint “should be abolished,” said Mr. Kakigi.

    Some observers expect that monthly ceiling to be doubled or tripled in the coming months.

    Other areas of reform under consideration in Japan include taking steps to promote portability, to reflect the fact that fewer employees now stay with one company throughout their working life, while accommodating the growing number of Japanese working overseas and foreigners working in Japan.

    Conference attendees heard from representatives of the ¥126 trillion GPIF about the Tokyo-based giant's Oct. 31 decision to lift its target allocations for domestic equities and foreign equities to 25% apiece from 12% each, while slashing its domestic bond target to 35% from 60%, to meet more aggressive return targets.

    Mr. Abe's lieutenants have made it clear this is the direction in which they want the GPIF to move.

    Institutional muscle

    While the perils of moving into higher-risk assets were acknowledged, speakers at the symposium contended that institutional investors increasingly will be flexing their muscles in ways that can improve their own operating environments.

    With traditional masters of the global financial universe, such as commercial banks and investment banks, being hamstrung now by regulators, the next 50 years will see pension funds and sovereign wealth funds taking their places at “policy tables, as well as investment tables,” predicted Charles Dallara, the Washington-based executive vice chairman and chairman of the Americas for Partners Group, a Zug, Switzerland-based private markets firm.

    A growing focus on corporate governance and investor activism is one example of that trend that's come into the spotlight in Japan.

    For the opening keynote speech on the symposium's second day, Brian K. Heywood, CEO and founding partner of Seattle-based Taiyo Pacific Partners, said the “engagement investing” his firm focuses on to foster shareholder-friendly and profitable Japanese companies could help close the gap that has left their returns on equity at half the level of companies in Europe and roughly a third of U.S.-based companies.

    In March, when the GPIF revamped its active domestic equity manager lineup, it awarded Taiyo Pacific Partners an initial mandate of roughly $50 million.

    Sadayuki Horie, a senior researcher at Nomura Research Institute Ltd., was tapped this year as deputy chairman of the GPIF's investment committee.

    New benchmark

    In a separate panel discussion, Mr. Horie said the GPIF's decision in March to employ the JPX 400 index, a new benchmark that focuses on companies that deliver high return on equity, could have significant, positive ripple effects.

    As Japan's anchor institutional investor, GPIF'S selection of a benchmark that can exert pressure on companies to take greater interest in capital efficiency and productivity could prove “very important” for long-term equity investment, Mr. Horie said.

    If the promise of a return to inflation helped cement the GPIF's decision to more than double its targeted allocation to stocks, slash bonds and begin investing in alternatives such as private equity, real estate and infrastructure, corporate pension executives at the symposium were less inclined to move out along the risk-reward curve.

    With most corporate funds having lowered their investment return target to between 2% and 2.5% in the past year as the yield on the 10-year Japanese government bond drifted down to roughly 0.5%, pension executives said they don't feel the need to take on more equity risk — after a decade or more of slashing their exposure to domestic stocks.

    Meanwhile, if the GPIF is just making its initial investments in alternatives, many corporate pension funds in Japan already have allocations of between 5% and 20%, and are considering further allocations as they position themselves to deal with a rising interest rate environment.

    Diversification

    On a panel discussion about investing in infrastructure and real estate, Kengo Torii, group manager, investment group for the ¥420 billion pension fund of Kariya-based Denso Corp., said his fund established a 5% target for alternatives from 2013. To date, the fund has allocated roughly ¥5 billion to private equity investments, and is making final decisions now on its first allocations to real estate and infrastructure, he said.

    Mr. Torii said he's looking to raise his fund's alternatives exposure to 10% “in the near future,” with a focus on private equity, real estate and infrastructure.

    On the same panel, Tohru Morohashi, investment manager of Kyoto-based Omron Corp.'s ¥1.15 billion pension fund, said his firm's allocations to alternatives came to 20%, with a 7 percentage point limit within that to non-liquid alternatives — including infrastructure, real estate and private equity — and the remaining 13 percentage points is for liquid alternatives.

    With Omron's pension fund poised to go to net outflows in about three years, Mr. Morohashi said he has favored listed real estate and infrastructure, to remain as liquid as possible while still aiming for returns of 5% or so that Japanese government bonds simply can't deliver. n

    Related Articles
    GPIF more than doubles equity allocation, slices domestic bonds
    Japan's GPIF embarks on volatile journey
    GPIF names Coller Capital partner as its first CIO
    Japan's GPIF returns 2.9% in latest quarter
    Japan's GPIF moves closer to replacing president with board
    Japan's GPIF posts 5.2% gain for quarter as equity allocations increase
    Japan's big public funds adopt GPIF's equity-heavy asset allocation targets
    Fitch cuts Japan's credit rating to A
    Recommended for You
    ONLINE_190329864_AR_0_YBKZZQSSKIZH.jpg
    IMCO returns 9.6% in 2021, outperforming its benchmark
    SLIDESHOW2_824009999_PH_7_HOEACWCAWVKF.jpg
    Northern Trust plan universe returns 0.2% in Q3
    Northern Trust: Institutional asset owners post 6% gain in Q2
    Northern Trust: Institutional asset owners post 6% gain in Q2
    Private Markets
    Sponsored Content: Private Markets

    Reader Poll

    August 10, 2022
    SEE MORE POLLS >
    Sponsored
    White Papers
    Gaining Momentum: Where Next for Trend-Following?
    The market opportunity in U.S. residential mortgage-backed securities
    Credit Indices Evolve with Enhanced Data Inputs
    Hedge Funds 2.0: Back to the future
    How Has 2022's Carnage Reshaped Global Stock and Bond Markets?
    Crossroads: Politics, Inflation, & Bonds
    View More
    Sponsored Content
    Partner Content
    The Industrialization of ESG Investment
    For institutional investors, ETFs can make meeting liquidity needs easier
    Gold: the most effective commodity investment
    2021 Investment Outlook | Investing Beyond the Pandemic: A Reset for Portfolios
    Ten ways retirement plan professionals add value to plan sponsors
    Gold: an efficient hedge
    View More
    E-MAIL NEWSLETTERS

    Sign up and get the best of News delivered straight to your email inbox, free of charge. Choose your news – we will deliver.

    Subscribe Today
    August 1, 2022 page one

    Get access to the news, research and analysis of events affecting the retirement and institutional money management businesses from a worldwide network of reporters and editors.

    Subscribe
    Connect With Us
    • RSS
    • Twitter
    • Facebook
    • LinkedIn

    Our Mission

    To consistently deliver news, research and analysis to the executives who manage the flow of funds in the institutional investment market.

    About Us

    Main Office
    685 Third Avenue
    Tenth Floor
    New York, NY 10017-4036

    Chicago Office
    130 E. Randolph St.
    Suite 3200
    Chicago, IL 60601

    Contact Us

    Careers at Crain

    About Pensions & Investments

     

    Advertising
    • Media Kit
    • P&I Content Solutions
    • P&I Careers | Post a Job
    • Reprints & Permissions
    Resources
    • Subscribe
    • Newsletters
    • FAQ
    • P&I Research Center
    • Site map
    • Staff Directory
    Legal
    • Privacy Policy
    • Terms and Conditions
    • Privacy Request
    Pensions & Investments
    Copyright © 1996-2022. Crain Communications, Inc. All Rights Reserved.
    • Topics
      • Alternatives
      • Consultants
      • Coronavirus
      • Courts
      • Defined Contribution
      • ESG
      • ETFs
      • Hedge Funds
      • Industry Voices
      • Investing
      • Money Management
      • Opinion
      • Partner Content
      • Pension Funds
      • Private Equity
      • Real Estate
      • Russia-Ukraine War
      • SECURE Act 2.0
      • Special Reports
      • White Papers
    • Rankings & Awards
      • 1,000 Largest Retirement Plans
      • Top-Performing Managers
      • Largest Money Managers
      • DC Money Managers
      • DC Record Keepers
      • Largest Hedge Fund Managers
      • World's Largest Retirement Funds
      • Best Places to Work in Money Management
      • Excellence & Innovation Awards
      • WPS Innovation Awards
      • Eddy Awards
    • ETFs
      • Latest ETF News
      • Fund Screener
      • Education Center
      • Equities
      • Fixed Income
      • Commodities
      • Actively Managed
      • Alternatives
      • ESG Rated
    • ESG
      • Latest ESG News
      • The Institutional Investor’s Guide to ESG Investing
      • ESG Sustainability - Gaining Momentum
      • Climate Change: The Inescapable Opportunity
      • Impact Investing
      • 2022 ESG Investing Conference
      • ESG Rated ETFs
    • Defined Contribution
      • Latest DC News
      • DC Money Manager Rankings
      • DC Record Keeper Rankings
      • Innovations in DC
      • Trends in DC: Focus on Retirement Income
      • 2022 Defined Contribution East Conference
      • 2022 DC Investment Lineup Conference
    • Searches & Hires
      • Latest Searches & Hires News
      • Searches & Hires Database
      • RFPs
    • Performance Data
      • P&I Research Center
      • Earnings Tracker
      • Endowment Returns Tracker
      • Corporate Pension Contribution Tracker
      • Pension Fund Returns Tracker
      • Pension Risk Transfer Database
      • Future of Investments Research Series
      • Charts & Infographics
      • Polls
    • Careers
    • Events
      • View All Conferences
      • View All Webinars
      • 2022 Retirement Income Conference
      • 2022 Managing Pension Risk & Liabilities
      • 2022 WorldPensionSummit