JAPAN - Japan's corporate pension funds have twice as much money entrusted to pooled accounts run by life companies and trust banks as they have under mandates awarded to asset managers, research shows.
The Japan Pensions Industry Database (JPID) said as of 31 March 2011 corporate retirement schemes had assets with a book value of ¥45.65trn ($551.48bn) at life companies and trust banks. Meanwhile, data compiled by the Japan Securities Investment Advisors' Association (JSIAA) shows schemes had ¥23.64trn invested with fund managers.
JPID said the numbers show while the business of managing pension assets has come a long way since it was first deregulated in 1995, it still had far to go.
"If managers are to win more business and pensions portfolios are to be more closely aligned with the investment horizons, the two sides will need far more effective communications channels and sponsors will need to let retirement-benefits staff build up their skills," the report said.
It argued a regulatory review of the role of sokanji - the trust banks and insurers who traditionally control a pension plan sponsor's investment - with a view to unbundling and deregulating it, would also be helpful, but the chances of that happening were "slim to nil".
JPID added: "And time is now short. The labour force is set to contract annually for the foreseeable future and by deregulating so late Japan lost years of investment management returns on contributions made when workers were young and plentiful. The nation remains very much a defined-benefit market."
The report said this situation had come about because until deregulation in 1995, retirement scheme investment and administration were the responsibility of trust banks and life companies. In a country where lifetime employment is the norm and pay has depended on length of service, companies have not use benefits packages to recruit or retain staff and human resources departments have tended to be small.
"The early-1960s laws which ushered in Japan's corporate pensions catered to this by providing that sponsors appoint a trust bank or life company as sokanji to set up and run their schemes," it added.
"Most companies automatically chose one of the financial firms within their own "keiretsu", a business group with cross-ownership or understood ties. Companies that did not belong to such a club often selected an entity which was a major shareholder or a big customer.
"As a result, Sokanjis thus came to be appointed in perpetuity without anyone really noticing."
The report said the problem is compounded by the lack of information readily available to sponsor's pensions staff - there is just one title covering the market - and the widespread practice of job rotation, which does not allow staff to get to grips with complex investment strategies.
In a bid to improve their experience, several sponsors which have set up their own fund management firms, include Hitachi Investment Management, Panasonic Pension Fund Management, Bussan Asset Management and Mitsubishi Corporation Asset Management.
The report added: "It is easy to see why some foreign fund managers have chosen to market themselves through and to the mammoth trust banks. These institutions already have in hand both pensions money needing better returns and access to sponsors through long-standing ties.
"The downside of business won this way is that it does little to bring the firms into contact with sponsors so does not diminish the industry's communications gap or help spread a manger's reputation among other potential customers. The foreigners thus become wholly dependent on a quintet of behemoths and a small number of consultants."
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