Changing demographics and low returns on investment since the bursting of the stock market bubble have brought about serious funding problems for public and private pension schemes in Japan. Their impact on the financial health of the public and corporate sector result in a strong incentive to reconsider present management and investment practices in order to increase returns on pension assets.
On the other hand, pension fund regulations and management methods in the US are nowadays often deemed to have contributed substantially to the present boom of the US economy. Particularly, legal requirements which stress the rights of pension beneficiaries are said to have prompted institutional investors to take an active stance on corporate governance issues and to become one of the driving forces behind the restructuring and productivity-enhancing efforts of US-companies. Pension funds in the US also support the nurturing of future growth industries – their investments in venture firms, although only a tiny fraction of their total assets, account for about 50% of total venture investments. The strongly performing US-stock market has in turn enabled many plan sponsors to reduce contributions to pension plans or even enjoy so-called pension holidays.
Therefore, US-pension system regulations, management and investment methods are nowadays often regarded as a panacea for underfunded Japanese pension plans and even for the ailing Japanese stock market. There seems to be a wide consensus that the Japanese pension system should and will evolve toward the US-paradigm.
The purpose of the presentation is to examine changes currently taking place in Japan’s pension system and to assess them in the overall context of financial liberalization and corporate restructuring; it shall provide a basic overview of the Japanese pension system and the causes of its current crisis, as well as current trends in pension asset management both at company and institutional investor level. A key issue for reform relates to the question of active corporate governance by institutional investors and their impact on improved shareholder value creation by Japanese companies.
Johann Heidinger is a Ph.D.-candidate in economics from Duisburg University, Germany, currently spending a year as a visiting research student at the Graduate School of Economics within the Faculty of Economics of Tokyo University.