Japan Pension Hit by Domestic Economy Problems

The Government Pension Investment Fund in Japan saw $17.7 billion wiped off its domestic stock portfolio, it announced today, with a 9.83% loss. A further $12.5 billion was sliced from its international equities holdings with a 7.55% loss. Equities make up just under 23% of the entire portfolio and are roughly evenly split between the two geographies.

At the end of June, the fund was valued at Y108,168 billion ($1.37 trillion) down from Y113,611 billion three months earlier. This loss marked the first negative return since the July – September period last year.

The fund’s domestic stock portfolio also underperformed its benchmark return target by 0.09% over the quarter. Domestic bonds and international stocks and bonds all outperformed their benchmark.

Japan has been suffering economic troubles for several years, but the tsunami in March last year has increased the pressure on the nation.

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In the twelve months to the end of August this year, the MSCI Japan index showed a 5.43% decline. Over three years the stock market has fallen 3.22% and over five years it fell 7.53%.

In comparison, the MSCI World index has risen 6.34% and 5.15% over the last 12 months and three years, respectively. It fell by 3.76% over the last five years, however.

The outlook for Japan does not look set to improve in the short term. Analysts at Societe Generale said today: “Together with weak industrial production outlook, domestic demand is obviously starting to run out of steam. The Cabinet office has also recently revised down its official outlook for both production and private consumption.”

The French bank said growth in Japan had probably slowed in the third quarter after an already weak second three months in terms of productivity and exports.

Domestic bonds make up around 65% of the pension fund portfolio. Just under a quarter of this allocation is in Financial Investment Loan Program (FILP) bonds, a type of government debt. These bonds made a positive 0.35% return, adding $600 million to the GPIF. This was much lower than the $2.9 billion it added a quarter earlier.

Last year, the GPIF made its first foray into emerging markets after being one of the more conservatively managed funds since launch in 2001.

A coalition of institutional investors is putting pressure on Aetna to open up about the millions of dollars it gives to political organizations for "educational activities."

(August 30, 2012) – Institutional investors noticed something odd in Aetna’s “Political Contributions and Related Activity” report: multi-million dollar donations to right-wing political organizations showed up just in footnotes as “voter education initiatives,” or were missing entirely.

Now they want to know more. A coalition of institutional investors representing $922 billion in assets are publically leaning on the insurance giant to open up about its political and lobbyist spending. The group approached Aetna about two payments that had been previously mentioned in an industry regulatory filing: $3 million to conservative “action tank” American Action Network and $4 million to the US Chamber of Commerce. In response, Aetna’s CEO Mark Bertolini said the contributions were for “educational activities” and that the company is not required to disclose them.

The investors are pushing back.

“Regardless of whether the expenditures were for lobbying or for educational purposes, we still don’t know what the $7 million bought the company or its investors,” said Robert Naftaly, chairman of the United Auto Workers Retiree Medical Benefits Trust. “What we’re really asking for is more information from our portfolio companies—including Aetna. ‘Transparency’ is not a four-letter word; rather, it inspires investor confidence and forms the bedrock of our capital markets.”

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Three weeks ago, the coalition wrote to Aetna’s board audit committee urging the company to publically disclose all of its political spending, direct and indirect. Signatories included the United Auto Workers’ medical benefits fund, Illinois State Board of Investment, New York State’s Common Retirement Fund, and the Teamsters’ union, among many other public and union investors from the United States, the United Kingdom, and the Netherlands. Aetna hasn’t budged, and the group is keeping the pressure on.

“Aetna’s effort to characterize millions in political donations it made in 2011 as ‘educational’ activities is a red flag for shareholders,” said New York State Comptroller Thomas DiNapoli in a statement. “Aetna, and all public companies, must always act in the best interests of its shareholders when spending corporate dollars. Transparency is the best possible way to maximize returns and minimize risk for investors. This episode should serve as a wake-up call that disclosure of political spending is an issue about which shareholders should be deeply concerned.”