A news release by the Hong Kong-based Japan Pension Industry Database which analyzes returns submitted to the Japan Securities Industry Investment Advisors Association (JSIAA) by its member firms, said the growth looks set to continue despite the nation’s “dire” demographics, shrinking workforce, and swelling ranks of corporate pensioners.
The business was shared among 119 firms, half domestic and half from overseas – more than at any time since fund managers were first allowed into the sector in 1995, the report said. Also for the first time, domestic firms pulled slightly ahead of foreigners in amounts under management with a combined 52 trillion yen.
BlackRock Japan Co Ltd came in number one with 18.2 trillion yen, followed by Sumitomo Trust & Banking Co Ltd with 15.1 trillion yen and Mizuho Trust & Banking Co Ltd with 11.2 trillion.
The two Japanese banks owe their positions largely to huge government mandates with micron-thin margins of which each holds ten. The fourth place is taken by State Street Global Advisors (Japan) Co Ltd.
Black Rock’s leap from tenth to first place is the product of its takeover of Barclays Global Investors which for the four years to 2008 dueled constantly for top place with the local DIAM Co Ltd (owned by Dai-ichi Life Insurance), according to the report.
Mandates in issue actually decreased in the term from 5,267 to 5,203, but Jo McBride, who heads the Database and performed the analysis, cautions that: “This is almost certainly misleading. Members’ returns show only mandates held, not the number lost or won. There is lively turnover in this market – especially with funds looking to increase yield and venturing more into alternatives – and mandates are getting bigger.”
Paying Out More than Contributions
According to the report, the search for yield and the consequent shift in asset allocations have picked up pace as companies reach the point of paying out more in benefits than they receive in contributions.
In 2008 40% of the type of DB scheme known as an “employee pension fund” (EPF) passed that milestone and from 2012 the situation will worsen for all types of plans, including those which pay out lump-sums rather than monthly pensions, as Japan’s baby boomers start to retire, the report said.
Meanwhile, just as the nation’s companies have put plants abroad, so its pensions schemes will go increasingly overseas – building on the around 20% of their portfolios already there and creating opportunities for the foreign and domestic money managers equipped to do their business.
The market is also expanding in other ways. By the end of March 2012 companies with loosely regulated “tax qualified” plans must replace them with either a DC scheme (available since 2002 but not popular with labour unions), or of a new type of DB plan overseen by the Ministry of Health, Labor and Welfare and subject to minimum funding requirements, the report said.
According to actuarial consultants Mercer (Japan) Ltd, in May this year about 20,000 sponsors had still to meet the deadline. Also by 31 March 2012, those DB schemes which have been allowed to temporarily have funding levels as low 90% will need to have eliminated their shortfalls through increased contribution levels.