To further its presence in Japan beyond asset consulting, Mercer aims to break into the market with an investment strategy targeting fiduciaries within the nation’s defined-benefit (DB) pension funds.
Stephen Roberts, the company’s Asia-Pacific business leader for investment management, said Mercer was planning to bring an investment strategy pitched at under-funded DB plans to the Japanese market, either by partnering with a local financial services provider or building its own presence on the ground.
Roberts said Mercer’s Dynamic De-risking Service (DDS) was being marketed at a time when Japanese pension funds were considering whether to realise the gains made in the recovery and lessen the extent of their under-funding.
The manager had also fielded some “reverse enquiries” from funds about the service, he said.
“The DDS allows us to accelerate ourselves into the marketplace,” Roberts said.
Some of Mercer’s client DB funds in the US and Europe had expressed some regret at not taking advantage of the last two equity bull runs – which preceded the dotcom crash and the financial crisis – to “lock-in” some gains and fund their liabilities.
“Having been underfunded before, they said when it got good again they’d lock some of it away.”
But many didn’t, and again found themselves in funding stress as the financial crisis broke.
“So they’ve gone for the third time into underfunding. [But] with the equity rebound, people are starting to think about it again.”
This meant cutting risk exposures by realising equity gains since the 2009 recovery and buying yield strategies.
Mercer recommends that fiduciary management, through which funds’ asset valuations and long-term liabilities are routinely matched, should be a daily task and not be constrained to the quarterly or monthly meetings of investment committees.
Putting too many days between these meetings meant that funds would “miss too many opportunities” to exploit valuations, Roberts said.
Mercer believed it could initially offer more “granular” strategies to Japanese investors, such as global unlisted infrastructure, but decided the DDS was a better option as it could engage a wider range of funds.
The service was developed by Mercer’s risk and retirement and funds management businesses. In Australia, Guy Thorborn’s risk and retirement team was conducting a feasibility study to assess whether the service would gain traction among the few DB funds in the market.