Arikawa-san—the former head of the giant Sony
pension system and now president of Mcube Japan,
an investment technology firm—talks hedge funds,
beta risk, and the Japanese Social Contract.
Solving the Japanese Pension Puzzle
I started in the finance department at Sony, and then I became the CIO of the Sony pension
fund. In 2003, when they created The Sony Global Pension Management Company, I became
the president of that. Like many Japanese, I stayed with a company for a long time, but then I
wanted change, so, in 2006, I moved to Mcube. There was a boom to move into hedge funds and alternatives
in Japanese corporate pension plans in the early part of this decade. These assets were mainly
illiquid—and they got killed. Japanese investors are often last in and last out. They are cautious.
It was a matter of psychology, but also the hedge fund industry invested in….how do I say….nice
words. “Absolute return”: it is a very comforting phrase. Some corporate pension funds put
60% to 70% of their assets in hedge funds. It was a fashionable thing to do. Most of these corporate
pension funds can’t take a loss. If they make a loss, they have to go to their parent company to
get special contributions—which, now, is hard to do. With profit and loss problems, it is hard
to make contributions to a DB system. They might have to move to DC plans. It wasn’t just the
corporate plans that suffered recently. I believe the Japanese public pension system [the $1.5 trillion
Government Pension Investment Fund, the largest in the world] lost almost $100 billion in 2008.
Japan has an aging population—we live a generally healthy lifestyle—so this is a problem. There’s
a strong belief in the non-English-speaking world of a social contract. Japan is probably the best example of
this. DC plans are not a good idea for Japan. Why? Because they’re very self-involved, everyone
for themselves, and it takes a specialist’s know-how to manage assets. That’s why we should stick
with DB plans. So, it’s more a social, how I say, commentary than an economic one. Because of
Japan’s use of DB plans, LDI [liability driven investment], it is very important, and I am trying to get
the word out, but consultants are very backwards here. Beta risk has been a problem for these Japanese
corporate plans. I saw this, and that’s why I joined Mcube. We are concentrating on this, looking to
change the asset classes that investors use depending on market factors. Exchange-traded futures
contracts are what we use—they are the most effective and low-cost way to implement these risk
controls. Japanese funds, both private and public, are now, understandably, trying to restructure
their investments. The challenge for them, the challenge for us, is to create an absolute return
environment with only liquid assets. That’s all.
Art by Adam Schmidt / aschmidtstudio.com