Japan’s Noritz pension fund sees dark clouds in 2024

The corporate pension fund is preparing its portfolio for a worse scenario than expected by most and is focused on creating alpha.
Japan’s Noritz pension fund sees dark clouds in 2024

With a forecast of sticky inflation and relatively high interest rates taking their toll on the global economy, Japan-based Noritz Corporate Pension Fund is preparing its portfolio for changes in financial markets.

Kiyoshi Iwashina,
Noritz Corporate
Pension Fund

The pension fund is reducing its long-only, passive management, and focusing on finding managers who can “really gain alpha,” Kiyoshi Iwashina, chief executive officer and chief investment officer at the fund, told AsianInvestor.

“I believe the emphasis should be on alpha-dependent management rather than beta-dependent management. I may reduce passively managed products and increase actively managed products that can be considered excellent alpha creators in both fixed income and equities,” he said.

Iwashina expects the current high inflation and high interest rates will persist longer than the average view of the financial markets, and that volatility in both the bond and equity markets will remain high.

“One opportunity is hedge funds that can also create short positions, and we believe that we can invest in long-only products if the manager is able to make a profit from short-term trading at any time,” he said.

Iwashina manages the defined benefits pension scheme with an annual return target of 3% for domestic employees at Noritz, a Japanese company known for producing tankless water heaters for industrial and private home use.

As of March 31, 2023, the end of the latest fiscal year (FY2022), Noritz Corporate Pension Fund had assets under management (AUM) of ¥22.7 billion ($170.4 million).


This outlook has already caused the pension fund to reduce the domestic fixed income portion and increase its exposure to the foreign exchange market.

The Japanese yen, in particular, has been on a historic slide, mainly because Japan’s central bank is keeping interest rates at rock-bottom levels while the Federal Reserve and other central banks have been on a hiking cycle.

“By reducing the foreign exchange hedging to overseas asset classes such as foreign fixed income products, we can enjoy the returns from the depreciation of the yen against the US dollar,” Iwashina said.

The recent high inflation environment could be there for another one or two years, Iwashina said. Therefore, he believes a soft landing will be very difficult for the global economy to achieve, especially in the West.

“I am very nervous about the portfolio construction, and especially in the fixed income area. I am not confident in investing major money into fixed income, domestically or globally. I am still nervous about the high inflation pressure,” Iwashina said.

To mitigate these concerns, the fund may also increase the proportion of good hedge fund products that can take short positions in financial markets.

However, that would mean the fund has to reduce the weighting in portfolios for multi-asset management, especially quant-type products, which are built around data from the low-interest-rate, low-inflation era, Iwashina explained.

As of FY2022, Noritz Corporation Pension Fund had 14.8% and 15% of its total AUM invested in hedge funds and multi-asset investments, respectively. Fixed income and equities made up 32.3% and 16.4% respectively, while the rest was in cash (13%) and general account (8.5%).


In the current environment with somewhat sticky inflation and high interest rates, Iwashina finds it difficult to imagine a solution through monetary easing because measures to deal with financial and economic crises when they occur are extremely limited, leaving him “very pessimistic.”

“Given these factors, we believe that financial market volatility is likely to remain high. In this sense, we believe that the current future forecasts of financial market participants are extremely optimistically skewed and will be a cause of great turmoil in the event of a considerably severe situation in the future,” he said.

He pointed out that those who are active on the “front lines of the financial markets” on Wall Street and elsewhere might only be in their 30s and 40s.

“In other words, they are a generation that has never experienced inflation. For this reason, as an old-timer, I believe that their current perception of inflation may be considerably underestimated,” Iwashina said.

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