Most Japan Pensions Have No Investment Experience, Survey Shows

About 90 percent of managers under Japan’s employee pension system have no prior experience overseeing assets, according to a government survey made after AIJ Investment Advisors Co. was found to lose client money.

Only 2 percent of managers at the 558 retirement plans under Japan’s employee pension fund system were certified as analysts at a brokerage or financial planners, the survey by the Ministry of Health, Labour and Welfare showed. Those who had worked at financial institutions made up about 3 percent.

The results underscore concerns that retirement assets in Japan may be at risk after AIJ, led by Kazuhiko Asakawa, was found by regulators to cover up $1.3 billion of losses from wrong-way derivative trades. Pensions in the country are seeking ways to bolster returns that have been hampered by low bond yields and two decades of slumping stocks.

Fund performance rather than risk drove investment decisions at employee pension funds, the survey showed. Forty percent of respondents said performance was the most important element for making an investment. Investment process and risk management accounted for 10 percent to 20 percent.

Eighty-eight retirement plans said they had either invested with AIJ in the past or currently have money with the Tokyo- based asset manager. Pensions that never knew of AIJ totaled 24 percent.

False Reports

Asakawa this week told a parliamentary committee he ordered the falsification of fund performance reports that were presented to clients -- mostly small to mid-sized retirement plans. AIJ lost 109.2 billion yen ($1.3 billion) from derivative trades directed by Asakawa over nine years, the Securities and Exchange Surveillance Commission said last week, after a two- month investigation that led to a revoking of AIJ’s registration.

The AIJ case has raised public concern about pension plans’ use of former bureaucrats, who may not have the proper skills to conduct due diligence. Some 721 former government officials oversaw the employee pension plans in a practice locally known as “amakudari,” which means “descent from heaven,” the survey showed.

Fifty-one pensions out of the 88 that reported investing with AIJ said ITM Securities Co. recommended its funds to them, while one was directly recommended by AIJ, the survey showed. Tokyo-based brokerage ITM was ordered by regulators to halt business for six months last week for allegedly selling the funds with the knowledge that reports of their value were false.

Hideaki Nishimura, founder of ITM, this week told parliament that his firm never doubted figures provided by AIJ.

Fifteen retirement plans invested in AIJ after hearing about the firm from their peers, the survey showed. Five funds were recommended to put money with AIJ by Tokyo Pension Research Institute, headed by Isao Ishiyama, a former employee of the Social Insurance Agency, according to the report.

The survey by the health ministry, which oversees the pension industry, was based on responses from 558 of the 581 plans under the employee pension structure as of March 1.

To contact the reporters on this story: Tomoko Yamazaki in Singapore at tyamazaki@bloomberg.net

To contact the editor responsible for this story: Andreea Papuc at apapuc1@bloomberg.net

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