Post-merger Meiji Group revamps asset mix
17 Oct 2012
The Meiji Group Pension Fund has revamped its policy asset mix, following the consolidation of the DB pension schemes of its group firms earlier this year. Meiji reduced risk overall, while offering two asset mix types that allow the option to include or exclude currency hedging for foreign securities.
It will assign a greater portion of its assets to fund managers with tactical asset allocation strategies for multiple assets. It managed its assets from April to September based on a temporary asset mix, using the asset allotment from the two pre-merger systems on a weighted-average market cap basis.
The new asset mix will cut foreign shareholdings by half and reduce the overall weighting of domestic and foreign shares. The assumed risk will be 4.67%. It already lowered its guaranteed yield from 2.5% to 2% in April, and will reduce its portfolio risk even further in the new mix. The expected return is 2.81%.
The new asset mix will offer types with and without currency hedging for foreign securities. An optimal allocation will be drawn up for both cases using the same expected return and assumed risk. The hedged mix will have a slightly higher ratio of domestic stocks and foreign bonds. Because the portfolio includes hedged foreign bonds as of the start of October, the fund will begin with the hedged option. If it deems such hedging unnecessary, it will switch to the other option and exclude hedged foreign securities.
It will raise its allocation for fund managers using multiple-asset TAA from around half to 75%.
The Group Fund has 14,000 subscribers and beneficiaries and ¥71.5bn ($907m) in assets. The fund will incorporate numerous asset types, including domestic and foreign bonds, hedged foreign bonds, emerging market bonds, corporate bonds, domestic stocks and cash. It will fine-tune its asset allotment to fund managers in accordance with the investment environment. The fund uses a TAA strategy that can be quickly changed, such as an immediate safeguarding of assets (cashing out), in line with circumstances.
For TAA, the fund had used Mitsui Sumitomo Trust, Mitsubishi UFJ Trust, Western Asset Management, and Amundi Japan. It will add Goldman Sachs Asset Management from October. It had previously entrusted that firm with non-hedged foreign securities, but will switch its contract from October to a TAA strategy including domestic, foreign and emerging market bonds and investment-grade corporate bonds. It will also increase its allotment to Amundi for a TAA that incorporates domestic stocks as well as bonds, as it already does at Mitsui Sumitomo Trust and Mitsubishi UFJ Trust.
The fund's switch to TAA stemmed from its expansion in its bond ratio in the pre-merger schemes. While maintaining bonds at its core as a safe asset, it aimed to raise its returns under the low-interest climate by adjusting the ratio of domestic stocks and cash in accordance with interest rate risk, share prices and other conditions. It also wanted to suppress the risk of negative returns. It has decided to increase the use of TAA because of the buoyant performance of its fund managers thus far.
Having created the basic framework, it will now proceed to work on the details. Alternative investments, pegged at 5% of the portfolio, currently employ a hedge fund strategy using stocks and bonds, but it will consider private equity and other assets going forward. The fund has shown an interest in alternative strategies focused on domestic properties.
Author: Nenkin Joho