The Current Situation of Japanese Pension Investment - Japanese Pension Fund Perspective on SRI
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The Current Situation of Japanese Pension Investment - Japanese Pension Fund Perspective on SRI

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Noboru Yamaguchi, Senior Executive Advisor, Fiduciary Services Reseach Center - Nomura Securities Co. Ltd. - Japan.

Noboru Yamaguchi, Senior Executive Advisor, Fiduciary Services Reseach Center - Nomura Securities Co. Ltd. - Japan.

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The Current Situation of Japanese Pension Investment - Japanese Pension Fund Perspective on SRI The Current Situation of Japanese Pension Investment - Japanese Pension Fund Perspective on SRI Presentation Transcript

  • Pension Investment in Japan today: perspectives on SRI Noboru Yamaguchi Senior Executive Advisor, Fiduciary Service Research Center, Nomura Securities Co., Ltd TBLI Conference Asia 2009, Yokohama May 27, 2009
    • Part 1 Research data
    • Institute for Policies on Pension & Aging conducted a comprehensive survey on Socially responsible investment (SRI) & Principles for responsible investment (PRI) in Japan.
    • The research questionnaires were sent to 1,432 employee pension funds (EPF), defined benefit plans (DB), and tax qualified pension plans (TQPP).
    • Response rate was 32.5 % (465 response).
    • This data was published in January 2008.
  • Table 1: Do you know about CSR? Source: Research Institute for Policies on Pension & Aging
  • Table 2: Do you know about SRI? Source: Research Institute for Policies on Pension & Aging
  • Table 3: Do you know about PRI? Source: Research Institute for Policies on Pension & Aging
  • Table 4: Have you adopted SRI? Source: Research Institute for Policies on Pension & Aging
  • Table 5: Why did you adopt SRI? Source: Research Institute for Policies on Pension & Aging
  • Table 6: When did you adopt SRI? Source: Research Institute for Policies on Pension & Aging
  • Table 7: Ratio of SRI allocation within Japanese equity Source: Research Institute for Policies on Pension & Aging
  • Table 8: Level of satisfaction With SRI investment process Source: Research Institute for Policies on Pension & Aging
  • Table 9: Are you satisfied with SRI returns? Source: Research Institute for Policies on Pension & Aging
  • Table 10: What would be necessary for you to adopt SRI ? Source: Research Institute for Policies on Pension & Aging
  • Table 11: Why didn’t you adopt SRI after considering the option ? Source: Research Institute for Policies on Pension & Aging
  • Table 12: Reasons for not adopting SRI now or in future Source: Research Institute for Policies on Pension & Aging
  • Table 13: What would be necessary for you to change your mind consider SRI investment? Source: Research Institute for Policies on Pension & Aging
  • Table 14: Have you received any proposals for SRI products? Source: Research Institute for Policies on Pension & Aging
  • Table 15: What was the selling point of the SRI investment proposal? Source: Research Institute for Policies on Pension & Aging
  • Table 16: How much were you satisfied by the proposal? Source: Research Institute for Policies on Pension & Aging
  • Table 1 7 : Those who did not receive proposals Source: Research Institute for Policies on Pension & Aging
  • Table 1 8 : Medium-long term influence of SRI investment Source: Research Institute for Policies on Pension & Aging
  • Table 19 : ESG environmental, social governance and corporate governance Source: Research Institute for Policies on Pension & Aging
  • Table 20 : Institutional challenges to start SRI investment Source: Research Institute for Policies on Pension & Aging
    • Part 2 Challenges and conclusion
  • We experienced various challenges in 2008
    • Equity: negative return with high volatility, risk premium?
    • Active manager: negative α, manager selection is key
    • Foreign exchange risk: strong yen and weak Japanese equity co-existed, we need more advanced risk control
    • Rebalancing: implementation was difficult
    • Illiquid assets: operational risk, counterparty risk, etc
    • Diversified portfolio: We experienced higher correlation than normal. How can we improve this?
    • Pension system & liability management should be reviewed, together with investment
  • Pension funds face more challenges
    • International accounting rules are going to be revised shortly and they will require more transparency and more mark-to-market valuation of assets and liability.
    • Maintaining defined benefit employees pension funds (DB/EPF) is becoming more costly for plan sponsors
    • Defined benefit employees pension funds (DB/EPF) are very much underfunded
    • Pension investment is by nature long term, but in reality the time horizon is getting shorter because of accounting rules
    • If we have another three years of negative returns, the future of the defined benefit (DB) system is unclear
  • Conclusions
    • CSR/SRI are well known but PRI is not well known yet
    • SRI investment is very limited (6.9%)
    • Pension funds need more information on investment process and track record
    • Proposals from managers are limited and explanation of the investment process is unsatisfactory
    • Plan sponsor policies and pension fund investment policies are correlated
    • To start SRI/CSR investment, we need long-term stability of the pension system and more confidence about the SRI/CSR investment process and returns
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  • ≪ Disclaimers required in Japan ≫   Investors in the financial products offered by Nomura Securities may incur fees and commissions specific to those products (for example, transactions involving Japanese equities are subject to a sales commission of up to 1.365% (tax included) of the transaction amount or a commission of ¥2,730 (tax included) for transactions of ¥200,000 or less, while transactions involving investment trusts are subject to various fees, such as sales commissions and trust fees, specific to each investment trust). In addition, all products carry the risk of losses owing to price fluctuations or other factors. Fees and risks vary by product. Please thoroughly read the written materials provided, such as documents delivered before making a contract, listed securities documents, or prospectuses. Nomura Securities Co., Ltd. Financial instruments firm registered with the Kanto Local Finance Bureau (registration No. 142) Member associations: Japan Securities Dealers Association; Japan Securities Investment Advisers Association; and The Financial Futures Association of Japan. DISCLAIMERS This material is: (i) for your private information, and we are not soliciting any action based upon it; (ii) not to be construed as an offer to sell or a solicitation of an offer to buy any security in any jurisdiction where such offer or solicitation would be illegal; and (iii) based upon information that we consider reliable, but we do not represent that it is accurate or complete, and it should not be relied upon as such.   Investors should consider this report as only a single factor in making their investment decision and, as such, the report should not be viewed as identifying or suggesting all risks, direct or indirect, that may be associated with any investment decision. No part of this material may be (i) copied, photocopied, or duplicated in any form, by any means, or (ii) redistributed without the prior written consent of the Nomura Group member identified in the banner on page 1 of this report. Further information on any of the securities mentioned herein may be obtained upon request. If this publication has been distributed by electronic transmission, such as e-mail, then such transmission cannot be guaranteed to be secure or error-free as information could be intercepted, corrupted, lost, destroyed, arrive late or incomplete, or contain viruses. The sender therefore does not accept liability for any errors or omissions in the contents of this publication, which may arise as a result of electronic transmission. If verification is required, please request a hard-copy version.