Initiation Speech
September 05, 2012
Mr. Hirofumi Sugata's speech doesnot appear.
Mr. Yasushi Ando
Mr. Yasushi Ando
CEO and COO, New Horizon Capital Co., Ltd.
Diversified Investment of Pension Funds Will Save Japan
I have worked in the management of investment funds with the goal to “produce the highest possible return for shareholders.” There are various kinds of funds, including mutual funds and the so-called “alternative investment”, such as hedging funds, activist funds and private equity funds (PE).
PE funds provide necessary funds and manpower after reaching an agreement among managers of portfolio companies and their main banks, based on extensive discussions prior to the actual investment. Corporate revival funds invest in companies reaching maturation to facilitate their revitalization and restructuring, while venture capital funds invest in startup companies with innovative technologies and know-how.
I believe Tokyo will become the world’s preeminent financial market by taking all possible measures to protect investors as well as nurturing whole range of funds to attract diverse investors from around the world.
Nominal GDP has almost doubled in the US over the past 15 years, yet it has decreased slightly in Japan. Financial assets in the household sector remain stagnant in this country, while majority of them have reverted to holdings of government bonds. Therefore, necessary funds do not reach companies that require capital-like funds to implement their growth strategies. Collaboration with PE funds secures such necessary funds.
PE funds enable speedy and secure allocation of financial resources as well as manpower and know-how. Unlike Japan, other countries are investing vast amounts in PE funds for the benefit of their capital intensive companies. In the US, for example, 7% of the corporate pension funds are allocated to PE fund investment, while majority of public pension funds allocate an even greater proportion to PE funds. In Japan, however, the proportion is almost zero for corporate pension funds, while public pension funds are even prohibited to invest in PE funds. Should Japanese pension funds make proportionate investment in PE funds, it will generate capital-like funds for companies to promote structural reorganization for growth.
Diversified investment reduces risk and secures sound asset management. In the US, ERISA (Employee Retirement Income Securities Act) was enacted in 1974 that stipulated pension portfolios to be diversified. Extensive political measures were also taken to promote investments in PE funds, which brought about industrial reorganization and nurturing new industries in the US. Peter Drucker advocated half a century ago that “a large amount of pension funds must be invested in the production and growth capabilities to stimulate the US economy.”
Pension management plays a “pivotal” role in the national strategy. Let me close my speech by emphasizing the urgency to formulate a mechanism that promotes diversified investment of pension funds to put the Japanese economy back on growth path and to secure a reliable pension management.