* Pensions drawn to multi-asset funds for stable returns
* Pension funds hit by adviser scandal, tough markets
* Big firms such as Nippon Life offering multi-asset funds
By Chikafumi Hodo
TOKYO, Dec 28 Nippon Life Insurance and other
Japanese financial heavyweights are scoring new business with
corporate pension funds - recently burned by an investment
adviser scandal and difficult domestic markets - by tailoring
multi-asset funds to offer limited risk and steady returns.
Japan's corporate pension funds, with more than 70 trillion
yen ($826 billion) in assets, are increasingly targeting minimum
returns - typically 2.5 percent a year - instead of using
relative performance benchmarks that for years have come up
short as bond yields fell and equities markets remained
volatile, pension fund sources and asset managers say.
Pension funds are also tending to shun smaller, independent
asset managers and hedge funds, after a scandal over $1.3
billion in hidden losses at Tokyo-based independent asset
manager AIJ Investment Advisors earlier this year.
This puts Japanese life insurers, trust banks, and big
domestic and foreign asset managers in position to battle for
new pension business, and multi-asset funds are proving an
"Multi-asset funds are increasingly gaining popularity among
many pension funds that want to control their risks, while at
the same time raise stable returns," said Mitsuhiro Arakawa, an
executive consultant at Russell Investments, a U.S.-based
investment manager and pension fund consultant.
"We've seen this growing trend in multi-asset funds over the
past few years, although the lineup is getting bigger this year
and this trend is expected to continue," Arakawa said.
Multi-asset funds had been a typical part of Japanese
pension funds' portfolios in the late 1990s and early 2000s,
although declining returns encouraged them to take more direct
control of their asset allocation decisions. Now the pendulum
appears to be swinging back the other way.
"This new trend to buy multi-asset funds is just picking up.
We need to see whether these funds actually perform well before
more pension funds shift their money into that space," said a
senior corporate pension fund manager, who declined to be
Nippon Life, Japan's top life insurer, has a new multi-asset
fund weighted heavily toward domestic debt, with about an 80
percent allocation, that aims for a 2.5 percent annual return.
The fund, managed by Nissay Asset Management and also
including foreign sovereign bonds and domestic and foreign
equities, aims to attract about 100 billion yen by the end of
the year to next March and 300 billion yen within three years,
said Masayoshi Tsuda, a Nissay Asset Management general manager.
The trust bank arm of Japan's top lender Mitsubishi UFJ
Financial Group also aims for a 2.5 percent return from
a balanced fund it launched in October, which has attracted 12
pension funds and 7.5 billion yen. It invests in conventional
assets - domestic and foreign bonds and equities - as well as
The trust bank unit of another big bank, Mizuho Financial
Group, targets a more ambitious 4 percent return from a
fund launched in September investing in conventional assets,
emerging markets, and alternative assets, including gold and
real estate investment trusts.
It has gathered about 15 billion yen so far from pension
funds, said Kouji Shibata, senior portfolio manager at Mizuho
Trust & Banking.
"Pension funds have been convinced, since these funds appear
to offer realistic targets," said Akihiko Ohwa, a veteran
pension fund manager who now lectures at the Graduate School of
Finance, Accounting and Law at Tokyo's Waseda University.
Pension funds have been shunning risk since the 2008 Lehman
crisis, shifting into fixed-income products from equities.
Returns became increasingly meagre, however, with the yield
on the benchmark 10-year Japanese government bond
holding near nine-year lows below 0.8 percent since the start of
this quarter, although it has begun moving up on the prospects
of aggressive policy measures to stimulate the economy.
Pension funds also remain wary of the domestic stock market,
despite a 20 percent rally in Tokyo's benchmark Nikkei average
since mid-November as optimism rises that the new
government of Shinzo Abe, who has pressured the Bank of Japan
for easier monetary policy, can finally break Japan from decades
of grinding deflation.
Waseda University's Ohwa said Japan's pension funds remain
keen to maintain or even lower the risk profiles of their
portfolios as they focus on securing targeted returns, still
smarting from the disappointing performance of Japanese equities
for much of the past two decades.
($1 = 84.7950 Japanese yen)
(Editing by Edmund Klamann)