Why do Japanese corporate pensions employ the multi-asset strategy?

What reasons do investors give for adopting the multi-asset strategy? In Chart 3 (multiple answers allowed), the top three responses chosen — mostly unchanged from the previous survey — were "to curb downside risks" chosen by forty-four investors (67.7%), "to facilitate quick changes in allocation" by thirty-two investors (49.2%), and "to diversify benefits of asset allocation" by twenty-five (38.5%). On the other hand, "to earn absolute returns" dropped from 2nd place in the 2017 survey with thirty investors (54.5%) to 4th place with twenty-four investors (36.9%).

Given that curbing downside risk was the most common reason for adopting a multi-asset strategy, what level of risk are investors comfortable with? Twenty-two investors (34.4%) said 5%, eleven (17.2%) said 3%, seven (10.9%) replied 2%, and seven more said 6%.

What rate of return do they expect? Thirty-one investors (48.4%) said 3%, ten (15.6%) said 5%, nine (14.1%) replied 4% and nine said 2%. In other words, investors want stability in exchange for relatively low risk-return levels.

Will corporate pensions change their multi-asset strategies?

Japanese corporate pension funds have more than 10 years of experience with multi-asset investment. An assessment is due. Stock markets grew more volatile in 2018, resulting in some losses among multi-asset investors. Are corporate pensions considering abandoning their multi-asset programs as a result? More than half, thirty-three (56.7%), said they had "no plan to cancel," while twenty-three (39.7%) had cancelled one or more strategies, and two pensions (3.4%) say they are planning to cancel. Compared with the previous survey, in which 36.4% answered either "cancelled" or "planning to cancel," more investors moved to cancel.

Why? Excluding investors with "no plan to cancel", the most common response was "dissatisfaction with/anxiety about returns" among twenty-three (50.0%), followed by "dissatisfaction with the effects of dynamic asset allocation" cited by twelve (26.1%) investors.

So where did the money go? With multiple responses allowed, most investors said "other multi-asset strategies" with ten investors (29.4%), followed by "hedge funds" with seven (20.6%), "private debt" with five (14.7%), "domestic/foreign bonds" and "domestic/foreign stocks" with four (11.8%) each, and "real estate" and "infrastructure" with two (5.9%) each.

Although most respondents claimed to have migrated to "other multi-asset strategies," most did not have a particular allocation for multi-assets. It seems that Japanese corporate pensions reserve a certain portion of their portfolios for multi-assets even though they may not specifically designate it as such.

How do corporate pensions plan to use multi-assets in the future? In Chart 4, thirty-seven investors (35.6%) said they would "maintain the status quo," twenty (19.2%) said they would "increase products or allocation ratio," and five (4.8%) vowed to "decrease products or allocation ratio." Forty-two (40.4%) reported "no plan to adopt" multi-assets. You may conclude that more than half of Japanese corporate pensions have a relatively positive view of the multi-asset strategy, while 40% remain unconvinced.