The Ñ661 billion ($5.5 billion) Pension Fund of NEC Corporation is now hiring JPMorgan Fleming as a currency overlay strategist to cover its burgeoning exposure to international equities, says Goichi Ohno, executive director in Tokyo.
The fund faces a Ñ114 billion deficit between what it has promised employees in its defined benefit retirement plan and the assets it is managing - a typical scenario for Japanese companies, which until the mid-1990s had their hands tied by strict regulations about how they could manage their investments.
Since NEC was allowed to establish its own asset allocation five years ago, it has gone heavily into equities and global investments in a search for higher returns to try to make up the difference it owes. In April of this year, NEC changed that asset mix to increase exposure to equities even more, now 55% of assets, with nearly 28% in foreign equities managed by 14 fund managers. Nearly half of its bond investments are also international.
All of its global fixed-income and more than half of its international equities - that is, about 48% of total assets - have been fully hedged (these are also mainly passive investments), but by the individual managers, not on a coordinated basis. As NEC must pay benefits in yen, it has a real need for hedging. As a corollary to its recent move to upgrade its exposure to international equities, it also decided to hire a currency overlay specialist. The overlay mandate does not apply to fixed-income allocations, however.
Ohno says NEC is also investing in hedge funds on an experimental basis to further boost returns. The firm is now choosing managers on its own, as its investment consultant Frank Russell was unable to provide this service. NEC likes the reduced volatility of absolute return strategies and is selecting two single-strategy funds for Japanese equities and an American fund of hedge funds. Initially, however, investments in hedge funds will be tiny.