New strategy: People walking along a popular sightseeing spot in Tokyo. Japan’s policymakers are encouraging individuals to shift from savings to riskier investments to help support retirees in one of the world’s fastest-ageing populations. — Reuters
TOKYO: One of Japan’s biggest pension funds has slashed its holdings of actively invested funds while its top management pledged to tighten scrutiny of asset managers’ performance.
Tokyo-based Federation of National Public Service Personnel Mutual Aid Associations, which manages about 10 trillion yen (US$68bil) in assets, exited 10 out of the 27 active funds it invested in, in the year ended March.
Active funds aim to beat market benchmarks, while passive funds are designed to mirror index moves.
The move reduced active funds to 8.9% of its assets compared with 13% a year earlier, according to the organisation, which is nicknamed KKR, an abbreviation of its Japanese name. It’s unrelated to US investment firm KKR & Co.
The Japanese pension manager looks to boost active funds again once it finds ones with suitable returns, according to KKR.
Japan’s policymakers are encouraging individuals to shift from savings to riskier investments to help support retirees in one of the world’s fastest-ageing populations, and that drive also applies to the nation’s pension funds that oversee more than 500 trillion yen combined in assets.
But the government wants funds to step up monitoring of risks at the same time, and Japan’s KKR is taking steps to follow that push.
Even if KKR invests in a fund, its managers “shouldn’t relax, as they will never know when they may be dropped,” said Akihiro Konishi, who became chief investment officer in April, in an interview.
It had appointed a person to be in charge of selecting funds to invest in, and it will come up with a system to monitor price moves in those funds daily.
And whereas KKR only conducted reviews of funds every five years to decide whether to stay in them or depart, it may shorten that period to a year or two.
Konishi likened the selection of active funds to choosing players in baseball, a sport that’s grown even more popular in Japan with Shohei Ohtani’s unprecedented success.
“It’s not like we just pick home-run batters,” Konishi said.
“The portfolio that we’re aiming for with active funds is, in baseball terms, one that has different roles, including batters that hit for power,” and fast runners, he said.
Japan’s KKR exited 10 active funds in fiscal 2024 due to their poor performance, comprising five for Japanese shares, one for foreign bonds and four for overseas equities.
Konishi, who is leading KKR’s re-examination of its fund investments, started his career in 1991 at what was then Long-Term Credit Bank of Japan Ltd, which was rescued and taken over by the government during the nation’s 1998 banking crisis.
The executive, who has also worked at Japan’s Rating and Investment Information Inc and DBJ Asset Management, said setting investment goals has become more difficult due to the market’s volatility.
“Until recently interest rates were constantly falling so bonds that we bought in the past were like savings accounts,” Konishi said.
“Now holdings of bonds like the 20-year are weighing on us” due to their previous low yields and long-term risk, pressuring KKR to buy shorter notes, he said. —Bloomberg
