Japanese corporate pension funds increased domestic bond allocations in their policy asset mix by 10 basis points to 15.1%, and plan to continue increasing exposure to alternatives, according to a survey by J.P. Morgan Asset Management.
The rise in allocation to domestic bonds marks the first time it has increased since JPMAM’s Japan Corporate Pension Funds Survey was first launched in 2009.
The survey by the $2.9 trillion asset manager was conducted between April and June and interviewed 79 pension funds and one mutual aid pension fund.
The largest part of the funds’ policy asset mix remains foreign bonds, although it has fallen to 30% from 30.5% last year. This is followed by alternatives at 24.2%, domestic bonds at 15.1%, foreign equities at 14.3%, cash and equivalents at 10.7% and domestic equities at 3.9%.
The report attributed the rising interest in domestic bonds to the Bank of Japan’s move to normalize its monetary policy. The BOJ hiked rates to 0.25% from a range of zero to 0.1% on Aug. 1, a move generally lauded by institutional investors.
Although foreign bonds still make up the largest proportion of the asset mix, 12.6% of respondents said they planned to reduce foreign bond allocations largely because of high foreign exchange hedging costs.
Asset allocation to alternatives within the policy asset mix also increased to 24.2% of the portfolio from 23.5% in the previous year, continuing the yearslong alternatives trend.
Actual allocation to alternatives rose to 15.2% in 2023, compared with 14.8% in 2022.
Real estate, infrastructure and private debt saw the most significant increase to 2.4%, 3.5% and 2.4%, respectively. Private equity allocation, however, fell to 4.1% from 4.2%.
This suggests that the pension funds remain focused on income to gain stable returns, the survey report said.
The trends in the survey indicate that corporate pension funds in Japan are continuing to reduce risk, as seen through the use of domestic bonds and the reduction of hedged foreign bonds, the report said.
