JAPAN - Japanese pension funds are starting to invest in toll roads, ports and pipelines for the first time, seeking higher returns to meet the retirement needs of the world's fastest-aging population.
The pension of drugmaker Astellas Pharma plans to invest in infrastructure funds that target developing and emerging nations, while Shiseido pension began investing JPY1.5bn ($18m) in U.S. and European assets this fiscal year. Nomura Securities, Japan's biggest securities firm, in June teamed up with a government administrative agency to set up a fund for projects in emerging Asia.
"Diversification has become a must for pension funds as we've seen in the recent sell-off in stock markets," said Yoshitaka Rokuta, executive director at the pension fund of Shiseido, Japan's largest cosmetics company, in Tokyo. "I went all the way to Australia to look with my own eyes at infrastructure projects that are attracting investments such as toll roads and railroads."
Japan's private pensions, which oversee more than JPY60trn, are seeking reliable returns as retirees tap their benefits in a nation where the average lifespan reached a record last year and global equities struggle to recover from the financial crisis. Pensions are looking overseas to invest in roads, ports and power plants because most projects in Japan are run by the government and aren't open to investments.
The MSCI World Index is down 13% from this year's peak in April.
Japanese pension plan returns have been hurt by low bond yields, an aging population and two decades of slumping stocks markets that has sent the Nikkei 225 Stock Average to a quarter of its 1989 peak. The nation's top 278 companies by market value were a combined JPY21.5trn short on pension funding in the fiscal year ending in March, a 50% increase from the previous year, according to a study by the Tokyo-based Daiwa Institute of Research.
Japan's public pension fund, the world's largest with about JPY120trn in reserves, is considering infrastructure investments to diversify and will commission a study on possible assets as early as September, the fund said in August.
The average allocation to infrastructure as an asset class for a typical Japanese pension remains close to zero, compared with 5% in Australia, 4% in Canada, 3% to 5% in Europe, and 3% by the California Public Employees' Retirement System, according to AMP Capital Investors. Calpers is the biggest U.S. pension fund.
The Next Generation Pensions Committee is on a mission to promote and encourage younger voices in the industry. Kim Kaveh looks at its key objectives
This week's top stories included an analysis finding the cost of equalising guaranteed minimum pensions in schemes could hit FTSE 100 profits by up to £15bn.
Employers whose dividend to deficit recovery contribution (DRCs) ratios fall outside the "normal range" should expect to see higher regulatory scrutiny, although no fixed ratio will be set.
Investment consultants and fiduciary managers should expect a final decision on the investigation into the market to be published by the end of the year, the competition watchdog says.