Japan's Fin'l Giants Grab Pension Business with Multi-Asset Funds

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TOKYO (Reuters) - Nippon Life Insurance and other Japanese financial heavyweights are scoring new business with corporate pension funds - recently burned by an investment adviser scandal and difficult domestic markets - by tailoring multi-asset funds to offer limited risk and steady returns.

Japan's corporate pension funds, with more than 70 trillion yen ($826 billion) in assets, are increasingly targeting minimum returns - typically 2.5 percent a year - instead of using relative performance benchmarks that for years have come up short as bond yields fell and equities markets remained volatile, pension fund sources and asset managers say.

Pension funds are also tending to shun smaller, independent asset managers and hedge funds, after a scandal over $1.3 billion in hidden losses at Tokyo-based independent asset manager AIJ Investment Advisors earlier this year.

This puts Japanese life insurers, trust banks, and big domestic and foreign asset managers in position to battle for new pension business, and multi-asset funds are proving an effective weapon.

"Multi-asset funds are increasingly gaining popularity among many pension funds that want to control their risks, while at the same time raise stable returns,'' said Mitsuhiro Arakawa, an executive consultant at Russell Investments, a US-based investment manager and pension fund consultant.

"We've seen this growing trend in multi-asset funds over the past few years, although the lineup is getting bigger this year and this trend is expected to continue,'' Arakawa said.

Multi-asset funds had been a typical part of Japanese pension funds' portfolios in the late 1990s and early 2000s, although declining returns encouraged them to take more direct control of their asset allocation decisions. Now the pendulum appears to be swinging back the other way.

"This new trend to buy multi-asset funds is just picking up.

"We need to see whether these funds actually perform well before more pension funds shift their money into that space,'' said a senior corporate pension fund manager, who declined to be identified.

Nippon Life, Japan's top life insurer, has a new multi-asset fund weighted heavily toward domestic debt, with about an 80 percent allocation, that aims for a 2.5 percent annual return.

The fund, managed by Nissay Asset Management and also including foreign sovereign bonds and domestic and foreign equities, aims to attract about 100 billion yen by the end of the year to next March and 300 billion yen within three years, said Masayoshi Tsuda, a Nissay Asset Management general manager. …