US/JAPAN -The world's biggest pension fund CalPERS has earmarked US$200m for a new Japan fund at a time when opinion over the country's ailing economy is divided.
The fund will be subject to CalPER’s strict corporate governance policies; Tokyo-based SPARX Asset Management Company will serve as the investment adviser to the fund and will help to turn around underperforming publicly traded companies in Japan.
CalPERS and San Diego-based Relational Investors, specialists in corporate governance, will share in a 30% equity stake. Relational already manages US$750m for CalPERS in active corporate governance strategies in the US.
The move targets significant investments in several Japanese corporations as well as collaboration with management.
The Japanese markets have slowly acknowledged the importance of corporate governance, and their progress is beginning to parallel the changes in the US economy in the last decade, said William Crist, president of CalPERS.
We can expect that shareowners will play a greater role in the Japanese markets, contrary to the traditional control of large banks and management. We believe the time is right to invest in this kind of partnership in Japan.
Active corporate governance strategies typically involve two steps. Managers make a moderate investment and start begin to communicate with company’s management, board of directors and other investors. If the company fails to be responsive to demands, managers may increase their investment to provide greater leverage in negotiations.
Our experience indicates that active corporate governance strategies have proven successful and add value to our investment portfolio, added Crist.
We have historically leveraged our indexed investment strategy and long-term ownership in companies. Active corporate governance strategies allow us to focus our efforts and take a larger ownership stake in a company.
Opinion over Japan has, at best, been split. Some managers believe that Japan has leveraged off discounted valuations, as well as positive corporate restructuring. However, concerns over growth, debt and accounting in the US have caused the yen to strengthen, subsequently weakening Japan's export position.
CalPERS’ new fund is part of a US$1.2bn commitment to external active corporate governance managers in the US, Japan and Continental Europe started in November 2001. CalPERS has started to spy opportunities in Europe and expects to invest the remaining US$1bn during the next two years.
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