Japan's Kewpie Pension Fund to focus on equities and fixed income

After a challenging year, there's always a need to rebalance a portfolio even after a positive result. Currency hedging and attractive investment targets are the focus, says Kewpie investment director.
Japan's Kewpie Pension Fund to focus on equities and fixed income

Strong performance in some asset classes has nudged Kewpie Pension Fund to focus more on investments into equities and fixed income in the near term. But costly hedging when investing overseas will influence investment preferences, according to the investment director.

The namesake corporate retirement fund for the food manufacturer best known for its mayonnaise manages two funds with total assets under management (AUM) of around ¥70.5 billion ($495 million,) as of its the fiscal year ending May 31 2023 (FY22/23).

Kosuke Okimori,
Kewpie Pension Fund

“Although we have gotten extra bandwidth from the board investment committee to go beyond target portfolio composition, we are looking to allocate more to fixed income to rebalance,” Kosuke Okimori, managing director at Kewpie Pension Fund, told AsianInvestor.

The two funds are currently under-allocated in fixed income with around 33% of total AUM for each fund against a target of 45% and 47%, respectively, plus/minus 10 percentage points.

In reverse, the funds are over-allocated to illiquid assets, or alternative investments, with around 30% of total AUM against a target of 20% and 18%, respectively, plus/minus 5 percentage points.

Also read: Specific-asset vehicles among 2023 strategy for Kewpie Pension Fund

The two funds made returns of 3.54% and 2.90%, respectively, in FY22/23. As equities and alternatives were performing well, they have gained a relatively large share of total AUM, both through performance and investment allocation throughout the year.

As the equities allocation is still within target, Okimori is also looking for opportunities in that asset class, and is more comfortable with the outlook for stock markets, especially in Japan.

“We are more interested in equities than fixed income currently, and we also see most opportunities domestically than overseas,” he said.


With a major need to increase the funds’ allocation to fixed income, Okimori sees these additional investments more as a necessity to ensure the required liquidity to ensure ongoing payments from the funds.

Here, the funds target 10 years of liquidity which means a need for at least 50% liquidity in the funds. That liquidity level is still in place, but the fixed income rebalancing bids Okimori to look closer at opportunities in the asset class.

The fixed income ratio in the funds will remain around 60% corporate bonds and 40% sovereign bonds. The latter investments are mostly made of risk and the necessity for diversification, especially in the case of Japanese government bonds where the yield for even a 30-year bond was 1.48% as of July 31.

“We are looking to invest more in Europe versus the US because 80% of the funds’ overseas assets are dollar denominated. Right now, the UK and the British pound look less attractive, so we want to diversify into euro-denominated assets, also for hedging cost concerns,” Okimori said.

Also read: Domestic bias helps Kewpie Pension Fund weather the storm

He added that the cost of currency hedging is “a serious issue” for Kewpie Pension Fund and other Japanese corporate pension fund peers because it has become increasingly expensive to hedge due to a relatively lower yen. 

“We are looking after ways to control and manage hedging costs and exchange rate volatility and risk. We are considering CTA funds as an alternative hedge function,” Okimori said.

Commodity trading advisor (CTA) funds are hedge funds that use a managed futures strategy. These funds invest in futures contracts and use a variety of trading strategies. These may include systematic trading and following trends. However, fund managers can actively manage investments using discretionary strategies, as well.


For the global, macroeconomic outlook, Okimori is turning positive on increasing stability after the recent Fed hike in July. However, he still sees obstructive risks that can change the positive sentiments in financial markets.

“I believe interest rates have peaked; it might decrease but not rise. However, inflation and Ukraine are still factors that could influence outcomes,” Okimori said.

Also read: Will Asia gain as Fed nears end of rate hike cycle?

As mentioned, the biggest headache for Kewpie Pension Fund is the trajectory of the Japanese yen against the US dollars and other major currencies – and how it influences hedging costs for overseas investments.

“Managers, both overseas and Japanese ‘gatekeeper’ managers need to be more focused on, and understanding of, currency hedging. The investment approach is no longer the same for Japanese investors as before when hedging costs were lower,” Okimori said.

Also read: Japan’s PFJC corporate pension fund braces for downturn

¬ Haymarket Media Limited. All rights reserved.