(April 23, 2012) — Japanese corporate pension funds are decreasing their allocation to developed country equities, especially Japanese equities, seeking alternatives along with emerging market equities, debt, and corporate bonds, according to a new survey by JP Morgan Asset Management.
“As many pension funds have high expectations for economic growth in the emerging countries, they are continuously increasing their allocation to emerging market equities and debt,” the survey said.
Meanwhile, these schemes are taking into account the European credit crisis, the survey noted. Within their fixed-income portion they have been shifting assets away from developed country sovereign bonds into various types of fixed-income asset classes that are expected to generate higher income gains.
Furthermore, being increasingly concerned about continuous yen appreciation, more and more pension funds have raised their currency hedging ratios. In the space of alternatives, for example, the study noted that absolute return strategies, mainly hedge funds, are now included in almost 70% of pension fund portfolios. Meanwhile, other types of alternatives, such as private equity, real estates, REIT, infrastructure and insurance-related strategies, are also spreading among Japanese pension funds., JP Morgan said.
The study continued: “Within the domestic bond area, short-duration bonds, long-duration bonds and corporate bonds have been added, along with emerging market debt, high-yield bonds and bank loans within the international bond field…In the equity space, more than half of pension funds have already invested in emerging market equities, while at the same time non-traditional strategies such as long-short equities, fundamental index, minimum variance and concentrated portfolios are more widespread.”
Hidenori Suzuki, Head of the Strategy Group at JPMorgan Asset Management (Japan) Ltd., who spearheaded the survey, said, “Most Japanese pension funds appear to maintain a cautious attitude in view of the equity price declines and rapid yen appreciation during the last year. What has drawn attention most is that many multi-employer type pension funds, which had been maintaining aggressive portfolios until last year, have shifted into taking a more conservative stance, and have lowered their target returns, decreased their allocation to equities and raised the ratio of their currency hedges.”
The survey was conducted from early March to April 2012. A total of 126 Japanese pension funds participated, including 87 defined-benefit corporate pensions, 36 corporate employee pension funds and three “other” pension funds.
JP Morgan’s study follows the decision by the Government Pension Investment Fund (GPIF) to pursure emerging markets for the first time last year.