Japan’s Pensions Dump Shares against the ‘Abenomic’ Plan

(April 1, 2014) — The largest investors in Japan have started to shed their domestic equity holdings, hurting Prime Minister Shinzo Abe’s plans for their capital to help the country’s economy recover.

Last week, Reuters reported these pension funds, which have more than $170 billion in combined assets, had started selling their equity holdings before the end of the tax year, which begins today.

Yesterday these investors continued the pattern, the news agency reported, citing sources within the country’s financial markets who were concerned they were moving too fast, too soon to fit with a scheduled retreat from relatively risky assets.

The start of the tax year brings reforms for corporate pension plans that are designed to sharpen up their investment strategies and get them in to good health. They have been given five years to improve or close.

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Despite equity markets sinking over recent months—in the first quarter of the year, the Nikkei lost 9%—these investors still decided to sell, market participants said.

“Trust banks tend to buy for rebalancing when the market is down. So we need to think something abnormal was happening,” Kenji Shiomura, senior strategist at Daiwa Securities told Reuters. “It’s likely to be pension funds’ selling. We could see more such selling in coming weeks.”

Between March 10 and March 20, the Nikkei fell by almost 6%. The index of Japan’s leading stocks has since rallied, but remains around two percentage points lower than at the start of the month.

These moves could be damaging for the Japanese Prime Minister’s plan to shore up the country’s equity markets with pension cash. Moving large amounts of capital into the Nikkei should provide a boost that would attract other investors.

However, data monitor EPFR said the Nikkei’s positive bump last week failed to fuel investor appetite, resulting in outflows from Japanese equity funds.

Taku Arai, product manager in Japanese Equities, at Schroders, remained unruffled by recent stock market movements.

“Japan’s encouraging inflation readings and employment data last week showed further evidence of the country’s improving economic trend and its progress in combating deflation,” said Arai. “While there are still concerns about the fading effect of yen weakness last year and slower demand due to a consumption tax hike from April 1, we remain positive on Japan’s longer term structural trends, namely an exit from deflation, a tightening labour market, and recovering levels of corporate spending.”

(April 1, 2014) — GIC, one of Singapore’s sovereign wealth funds, has opened an office in São Paulo, Brazil.

The new location is its 10^th regional office, and will be headed by Dr Wolfgang Schwerdtle.

In a statement, GIC said the new opening reflected its commitment to Latin America. In particular, the sovereign wealth fund was interested in opportunities in real estate, healthcare, financial and business services, natural resources, and infrastructure.

“Our presence in Brazil will enable our partners to engage early and interact closely with the GIC team, which is very beneficial for complex and sizeable investments,” said GIC Group Chief Investment Officer, Lim Chow Kiat.

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“We believe our partners will gain from having access to GIC’s global network of business contacts and market insights. Although emerging markets remain volatile, we are confident of the long-term Latin America growth story.”

Group President Lim Siong Guan added: “GIC’s presence in Brazil is another step in our strategy to be present in key financial capitals around the world. Local partners and insights add to our global understanding of value investment opportunities.

“To stay ahead in an increasingly competitive landscape, we will continue to leverage our ability to invest on a multi-asset class basis, respond quickly to investment opportunities both large and small, and adopt a long-term view in our investment commitments.”

Investors establishing regional bases was highlighted in the February edition of aiCIO. The Canada Pension Plan Investment Board, which already had offices in Hong Kong and London, opened its São Paulo office in February, and the Alberta Investment Management Corporation revealed it had opened a London office at the beginning of the year. Dutch investment giant APG also has offices in New York and Hong Kong.

Not all of the world’s largest investors are jumping on the bandwagon however: the California Public Employees’ Retirement System and California State Teachers’ Retirement System (CalSTRS) have considered opening regional offices several times, but have ultimately been hamstrung by the bureaucracy of being a governmental fund.

Chris Ailman, CIO of CalSTRS, told aiCIO: “There’s just no way, given the governance structure. Virtually all of the large public funds in the US were set up in the 1970s as divisions of governmental agencies. Smart business decisions such as setting up global offices are common sense for a money manager, but nearly impossible for a governmental agency.

“If you look at us through the lens of a governmental entity and compare us with the department of licensing, our structure and operation look expensive. That’s because we are not a state entity in that way—we’re a money manager, a global money manager who has to compete with global entities. If you look at us through the lens of a Wall Street money management firm, you would be shocked the other way at how inexpensive and frugal we are.”

Separately, reports of GIC’s former CIO Ng Kok Song receiving seed money for his new hedge fund from the sovereign wealth fund have appeared in the press.

Song, who remains an advisor to the fund, is believed to be rolling out a macro hedge fund later this year. GIC’s press office could not be reached for confirmation at the time of writing.

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