Japan’s corporate pension funds have twice as much money in pooled accounts run by life companies and trust banks as they have under mandates with specific investment goals and terms of reference run by asset managers.
That situation needs to change, but it won’t happen overnight, according to the Japan Pensions Industry Database (JPID)*.
On March 31, Japanese corporate retirement schemes had assets with a book value of ¥45.65 trillion (then $551.48 billion) at life companies and trust banks, according to Nenkin Joho (‘Pensions Information’, a fortnightly newsletter).
At the same date, the schemes had investments with a market value of ¥23.64 trillion at fund managers, according to the Japan Securities Investment Advisors’ Association.
The difference between book and market values is generally not great, given the flat-to-deflationary performance of the domestic economy over that past 15 years and the restraining effect that has had on Japanese government bonds and stock prices, notes the JPID blog.
The business of managing pension assets has come a long way since it was first deregulated in 1995, but it still seems to have a long way to go.
If managers are to win more business and pensions portfolios are to be more closely aligned with the investment horizons, says the JPID, the two sides will need far more effective communication channels and sponsors will need to let retirement-benefits staff build up their skills.
One thing that would help is a review of the rules around the sokanji that runs the pension scheme, says the blog.
Laws that have been in place since the early-1960s provide that sponsors appoint a trust bank or life company as sokanji (organiser) to set up and run their schemes. Most companies have automatically chosen one of the financial firms within their own keiretsu (a business group with cross-ownership or understood ties).
Companies that did not belong to such a club often selected an entity that was a major shareholder or a big customer.
“So it is no surprise that the top trust banks and life companies ranked by pooled corporate retirement assets are those which act as sokanji for the most funds,” says the JPID.
Moves to unbundle and deregulate the sokanji rules would be a step in the right direction, “but the chances of that happening are slim to nil”.
Some foreign fund managers have chosen to market themselves through and to the big trust banks, which already have both pensions money needing better returns and long-standing access to sponsors.
The downside of business won this way, notes the JPID, is that it does little to bring managers into contact with sponsors, so does not diminish the industry’s communications gap or help spread a manager’s reputation among other potential customers.
*Accessible at: http://www.ijapicap.com/blog/