Japan Pension Makes First Direct Infrastructure Buy

(July 2, 2013) — A Japanese pension fund has joined a consortium of institutional investors to make its first direct infrastructure investment, as the country’s largest retirement scheme mulls a portfolio shake up.

The Pension Association, a federation of employees’ pension funds, has joined with infrastructure stalwarts, Borealis—an affiliate of the Ontario Municipal Employees’ Retirement System (OMERS)—to buy a gas-fired power plant in the US, the AFP reported.

Under the terms of the deal, OMERS will take a 50% stake in the Midland Cogeneration Venture in Michigan; the Pension Association will take 25%; the remaining quarter will be split between other partners, which include several Japanese financial institutions.

The deal marks the first time the pension fund—which oversees around $100 billion in assets—has broken out of its equities/bond portfolio.

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At the end of 2011, the pension held almost 40% in equities, with the remainder in bonds, according to its website. The allocation is rebalanced depending on its funding level, and the 2011 portfolio construction suggested it was less than 100% funded at that time.

The move to invest in an alternative asset class comes as the largest pension fund in Japan—and the world—the Government Pension Investment Fund (GPIF), is set to branch out from its traditionally mainstream portfolio.

Some $70 billion of the GPIF’s $1.16 trillion is to be allocated to global bonds and equities, the Japanese Prime Minister announced last month, taking money away from domestic fixed income markets.

The shift was encouraged by Prime Minister Abe as a way to help the country’s economy to recover.

In April, a survey by JP Morgan Asset Management showed Japanese pension managers were intending to increase their allocation to international securities in the hunt for yield.

(July 2, 2013) — More than a third of people running multi-employer defined benefit pension plans in the US believe the system will not outlive the current financial strife, a survey has shown.

Some 37% of respondents to an annual survey by Fidelity affiliate Pyramis Global Investors said Taft-Hartley multi-employer plans had been buffeted by various pressures, including low interest rates and investment volatility. In addition to economic circumstances, respondents cited declining union membership, rising benefit obligations, legislative challenges, and the departure of sponsoring companies from the system as significant challenges.

“Our survey reflects many of the concerns Taft-Hartley plans have about the sustainability of the multi-employer model,” said Mike Jones, president and CEO of Pyramis. “Over the long term, however, respondents tell us they see a future of different models with changes in the responsibilities of different parties involved in the process.”

The plans with the worst funding levels, maybe unsurprisingly, showed the greatest concern for the survival of the system. Some 53% of plans with an 80% funded level or worse said the system was not sustainable, while, 55% of all respondents to the survey said their plan was financially strong.

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The whole group expected changes to occur across the system as a whole-if not in their particular plan-which included raising retirement ages or shifting from a defined benefit plan to another structure. Some ventured that a type of hybrid scheme could be created to ease pressure on funding levels.

In the short term though, these pension plans are changing the way they invest to try and keep afloat, the survey revealed. More than half of the Pyramis survey respondents said they would diversify further into alternative asset classes to make up funding shortfalls and manage volatility. Taft-Hartley plans already have one of the largest allocations to alternatives in the institutional investment sector.

Almost a quarter said they would invest in liquid assets, such as hedge funds, with just over a fifth opting for more illiquid investments.

A striking change for the sector has come with almost three-quarters of respondents reporting an adoption of outside assistance for its investment strategies. Some 41% of respondents said they had taken on a partial fiduciary management option.

Full results of the survey, which interviewed plans holding $150 billion, or a third of the sector’s assets, can be found here.