Fiscal Year 2018 Review of Operations
Employees' Pension Insurance Benefit Association Reserve Fund

全国市町村職員共済組合連合会
National Federation of Mutual Aid Associations for Municipal Personnel

Employees' Pension Insurance Benefit Association Reserve Fund(National Federation of Mutual Aid Associations for Municipal Personnel)

Table of Contents
・ Investment Results (Overview)・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・ P3【Section 1 Administration and Investment of Funds in FY2018】
・ Market environment・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・ P5
・ Asset mix・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・ P6
・ Investment return・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・ P7
・ Contribution analysis of excess return・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・ P8
・ Investment income・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・ P10
・ Value of assets・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・ P11
・ Fees・・・・・・・・・・・・・・・・・・・・・・ ・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・ P12
・ Benchmark portfolio・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・ P13
・ Approach to risk management・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・ P14
・ Risk management efforts・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・ P15
・ Status of risk management (overall assets)・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・ P16
・ Investment in alternative assets・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・ P17
・ Stewardship activities・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・ P18
・ Review of manager structure・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・P28
・ Administration and evaluation of entrusted investment management institutions, etc.・・・・・・・・・・・・・・・・・・・・・・・・・・・・・ P29【Section 2 Business and Fund Investment of National Federation of Mutual Aid Associations for Municipal Personnel】
・ Organizational structure・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・ P31
・ Fund Management Committee・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・ P33
・ Basic approach to investment・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・ P35【Section 3 Reference Data】
・ Changes in the investment return, etc.・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・ P37
・ Issues held・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・ P38
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Employees' Pension Insurance Benefit Association Reserve Fund(National Federation of Mutual Aid Associations for Municipal Personnel)

Investment Results (Overview)

Investment return+1.59% Modified total return (market value basis)(FY2018)

Investment income +JPY87.9 billion Investment income(FY2018)(market value basis)

Value of investment assets: JPY5,669.5 billion Total market value(End of FY2018)* As pension funds are intended for long-term investment, the investment status must be judged from the longterm perspective.
As investment income is based on the total market value as of the end of each term, it should be kept in mind
that it includes valuation gains/losses, which means it may change depending on market movements.
(Note) The return and income represent figures after the deduction of fees, etc. settled within the relevant period.

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Employees' Pension Insurance Benefit Association Reserve Fund(National Federation of Mutual Aid Associations for Municipal Personnel)

Section 1 Administration and Investment of Funds in FY2018

4

Employees' Pension Insurance Benefit Association Reserve Fund(National Federation of Mutual Aid Associations for Municipal Personnel)

Market environment○ Change in benchmark return (March 31, 2018 = 100)
115

Foreign equities
110

Foreign bonds
105

100

Domestic bonds
95

90

Domestic equities
85

80
Mar. 31,2018

Apr. 30,
2018

May. 31, Jun. 30,
2018
2018

Asset class

Jul. 31,2018

Aug. 31, Sep. 30,
2018
2018

BenchmarkOct. 31,2018

Nov. 30,
2018

Dec. 31,2018

Jan. 31, Feb. 28,
2019
2019

Mar. 31,2019

Returns
Q1

Q2

Q3

Q4

NOMURA-BPI Overall

0.20%-0.96%

1.36%

1.30%

1.89%

Domestic equities TOPIX (with dividends)

1.05%

5.86%

-17.60%7.74%-5.04%

0.76%

1.40%

-2.49%

2.85%

2.46%

5.21%

7.10%

-15.50%13.77%

8.33%

1.76%

3.10%

-8.34%

6.21%

2.12%

Domestic bonds

Foreign bonds
Foreign equities

FTSE World Government Bond Index(excluding Japan; without hedging, yen-based)

MSCI ACWI ex. JAPAN (yen-based, withdividends)

Total

Full fiscal year

(Note) The total is the return calculated by weight-averaging the benchmark returns for individual asset classes based on
the shares in the asset mix of the benchmark portfolio.

5(Source: Bloomberg)

Employees' Pension Insurance Benefit Association Reserve Fund(National Federation of Mutual Aid Associations for Municipal Personnel)

Asset mix
The composition by asset is as follows:(Unit: %)FY2017FY2018End of FY

End of Q1

End of Q2

End of Q3

End of FY

Domestic bonds

32.7

35.0

32.9

37.1

32.8

Domestic equities

23.3

24.7

24.6

22.9

22.1

Foreign bonds

13.4

14.3

13.7

15.2

14.0

Foreign equities

22.5

25.1

25.1

23.3

23.4

Short-term assets

8.1

0.9

3.7

1.5

7.7

Total

100.0

100.0

100.0

100.0

100.0

Composition by Asset Class(as of end of FY2018)
Short-term
assets7.7%

Foreignequities
23.4%
Foreign
bonds
14.0%

Domestic
bonds
32.8%

Domestic
equities
22.1%(Note 1) Concerning the benchmark portfolio, the share in the mix is 35% for domestic bonds (±15%), 25% for domestic equities (±14%), 15% for foreign bonds(±6%) and 25% for foreign equities (±12%) (the figures in the parentheses represent deviation tolerances).
(Note 2) Due to rounding, the total sum of individual figures may not necessarily add up to 100%.
(Note 3) Short-term assets held by each fund were classified into relevant asset classes in principle.
(Note 4) The ratio of alternative assets to the total amount of pension funds is 0.2% (the upper limit for the benchmark portfolio is 5%).

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Employees' Pension Insurance Benefit Association Reserve Fund(National Federation of Mutual Aid Associations for Municipal Personnel)

Investment return
The modified total return for FY2018 was 1.59% for the overall assets.
(Unit: %)

Q2

Q3

7.50%
5.68%

FY2018
Q1

Changes in modified total return

5.00%

Q4

FY total

3.00%
2.50%

Modified total return

1.63

3.00

-8.19

4.67%

5.68

1.63%
1.59%

1.59
0.00%

Domestic bonds

0.18

-0.82

1.23

1.35

1.94

-2.50%

Domestic equities

1.01

5.70

-17.54

7.64

-5.24

-5.00%-3.86%
Each quarter

Foreign bonds

0.80

1.55

-2.55

2.88

2.64

-7.50%

Aggregate-8.19%-10.00%Foreign equities

5.11

6.97

-15.61

13.82

7.82

Short-term assets

0.00

0.00

0.00

0.00

0.00

Q1

Q2

Q3

Q4

Modified total return by asset(aggregate for the fiscal year)

10.00%

7.82%
7.50%

(Unit: %)FY2018Realized return

5.00%
2.50%

2.64%

1.94%

1.59%

0.00%

Q1

Q2

Q3

Q4

FY total

0.00%

0.75

0.79

0.63

0.79

2.96

-2.50%-5.00%(Note 1) The return in each quarter is the period rate.
(Note 2) The modified total return and realized return represent figures after the deduction of fees,
etc. settled within the relevant period.
(Note 3) The amount of interest related to the settlement of the former occupational portion of thepension plans transferred from the transitional long-term accounting to the employees'
pension insurance accounting is included in the return for domestic bonds.

7-5.24%-7.50%-10.00%
Domestic Domestic
bonds
equities

Foreignbonds

Foreignequities

Short-term
assetsOverallassetsEmployees' Pension Insurance Benefit Association Reserve Fund(National Federation of Mutual Aid Associations for Municipal Personnel)

Contribution analysis of excess return (1)The modified total return for overall investment assets was 1.59%, while the excess return compared with the benchmark return was -0.53%.
As for the asset allocation factor, underweight of foreign stocks and holding of short-term assets contributed to the negative excess return.
The return due to the individual asset factor was negative because the return on domestic and foreign stocks was lower than the benchmark.
As a result, the excess return on overall assets was negative.
Excess Returns (by Asset Class)
FY2018 (April 2018 through March 2019)
OverallassetsModified total return
Benchmark return
Excess return*(Unit: %)Domesticbonds

Domestic
equities

Foreignbonds

Foreignequities

0.40%

0.04%
0.00%

1.59

1.94

-5.24

2.64

7.82

2.12

1.89

-5.04

2.46

8.33

-0.20%-0.51-0.40%

-0.53

0.04

-0.20

0.18

0.18%

0.20%

-0.20%-0.80%-1.00%Overall assets

Asset allocation
factor①

Individual asset
factor②①＋②

Domestic bonds-0.04%-0.03%-0.07%

Domestic equities

0.02%-0.08%-0.06%

Foreign bonds-0.02%

0.01%-0.02%

Foreign equities-0.12%-0.16%-0.28%

Short-term assets-0.10%-0.01%

Total-0.26%-0.27%-0.51%-0.53%-0.60%* The benchmark return for overall assets is calculated by weight-averaging thebenchmark returns for individual asset classes based on the shares in the asset
mix of the benchmark portfolio.

Domestic bonds

Domestic equities

Foreign bonds

Foreign equities(Reference) Deviation of the Federation's portfolio (book value average balance +accrued income as of the end of previous period + valuation gains/losses as of theend of previous period) from the benchmark portfolio
Federation's
portfolio

Benchmarkportfolio

Deviation

Deviation
tolerance

Domestic bonds

34.0%

35.0%

-1.0%

±15%

Domestic equities

24.3%

25.0%

-0.7%

±14%

Foreign bonds

14.0%

15.0%

-1.0%

±6%

-0.10%

Foreign equities

23.5%

25.0%

-1.5%

±12%

-0.53%

Short-term assets

4.2%

Total

100.0%

4.2%
100.0%

0.0%(1) Asset allocation factor: A factor that is attributable to the difference between the asset mix of the fund and the benchmark portfolio.
(2) Individual asset factor: A factor that is attributable to the difference between the modified total return and benchmark returns concerning each asset class.

8

Employees' Pension Insurance Benefit Association Reserve Fund(National Federation of Mutual Aid Associations for Municipal Personnel)

Contribution analysis of excess return (2)○ Domestic bonds
The modified total return of domestic bonds was 1.94%, which exceeds the benchmark return (1.89%) by 0.04%.
The selection of corporate bond issues (some of which are yen-denominated foreign bonds) by active funds was
successful, resulting in a higher return than the benchmark. Because of this and other factors, the excess return was
positive.
○ Domestic equities
The modified total return of domestic equities was -5.24%, which was below the benchmark return (-5.04%) by 0.20%.
While the return on passive funds exceeded the benchmark due to the effects of lending income, the return on active
funds investing mainly in small- and mid-cap stocks or promoting growth strategy performed poorly. Because of thesefactors, the excess return was negative.
○ Foreign bonds
The modified total return of foreign bonds was 2.64%, which exceeds the benchmark return (2.46%) by 0.18%.
The excess return was positive due to such factors as the relatively higher returns on active funds whose benchmark is
Barclays Global Aggregate Index compared with active funds whose benchmark is FTSE Global Bond Index as a result of
the difference in returns for each benchmark.
○ Foreign equities
The modified total return of foreign equities was 7.82%, which was below the benchmark return (8.33%) by 0.51%.
The dividend taxation factor had negative effects on passive funds. In addition, the return on some active funds was lower
than the benchmark. For example, value-type funds making intensive investments in issues whose market prices were
deviating far from the fundamental enterprise value performed poorly. Because of these factors, the excess return was
negative.

9

Employees' Pension Insurance Benefit Association Reserve Fund(National Federation of Mutual Aid Associations for Municipal Personnel)

Investment income
The investment income for FY2018 was JPY87.9 billion (for overall assets).

Changes in investment income(Unit: JPY100M)(Unit: JPY100M)

3,500

2,500

Q1

Q2

Q3

Q4

Investment income

888

1,673

-4,682

Domestic bonds

34

-154

Domestic equities

134

Foreign bonds
Foreign equities

1,673

FY total

1,500

3,000

879

500

231

252

364

-500

762

-2,485

888

-702

61

120

-201

223

204

-3,500Each quarter

659

946

-2,228

1,637

1,013

-4,500Aggregate0

Short-term assets

0

3,000

2,562

FY2018

0

0

888
879

-1,500-2,121-2,500-4,682-5,500

0

Q1

Q2

Q3

Q4

Investment income by asset (aggregate for the fiscal year)(Unit: JPY100M)

Q1
Realized income

359

Q2

383

FY2018
Q3

306

1,200

Q4

387

(Unit: JPY100M)
1,013

FY total

1,436

879
800
400

(Note 1) The investment income and realized income represent figures after the deduction of fees, etc.
settled within the relevant period.
(Note 2) The investment income represents the realized income adjusted for the effects of changes invaluation gains/losses based on market value.
(Note 3) Realized income represents the sum of trading profits/losses and interest and dividend income, etc.
(Note 4) The amount of interest related to the settlement of the former occupational portion of the pension
plans transferred from the transitional long-term accounting to the employees' pension insurance
accounting is included in the return for domestic bonds.
(Note 5) Due to rounding, the total sum of individual figures may not necessarily add up to FY Total.

10

364
204
0

0
-400
-800

-702

-1,200

Domesticbonds

Domestic
equities

Foreignbonds

Foreignequities

Short-term
assetsOverallassetsEmployees' Pension Insurance Benefit Association Reserve Fund(National Federation of Mutual Aid Associations for Municipal Personnel)

Value of assets
The book value, total market value and valuation gains/losses by asset is as follows.
(Unit: JPY100M)

FY2018FY2017
End of FY

End of Q1

End of Q2

End of Q3

Book
value

Total
market
value

Book
value

Total
market
value

Book
value

Total
market
value

Book
value

Total
marketvalue

18,10518,744639

18,192

18,873681

18,343

18,825482

18,18518,851

10,487

13,3272,840

10,49913,3502,851

10,547

14,112

3,565

10,668

7,799

7,677

-122

7,778

7,738

-40

7,814

7,858

44

Foreignequities

9,632

12,858

3,226

9,755

13,518

3,762

9,816

14,353

Short-term
assets

4,632

4,632

0

481

481

0

2,107

Total

50,65557,2386,583

46,70653,961

7,255

48,627

Domesticbonds
Domestic
equities
Foreignbonds

Valuation
gains/losses

Valuation
gains/losses

End of FY
Book
value

Total
marketvalue

666

17,794

18,584790

11,627959

10,811

12,515

1,704

7,933

7,738

-196

8,022

7,964

-58

4,538

9,688

11,805

2,117

9,701

13,291

3,590

2,107

0

737

737

0

4,341

4,341

0

57,255

8,628

47,21150,7583,547

50,66956,695

6,026

Valuation
gains/losses

Valuation
gains/losses(Note 1) Due to rounding, the total sum of individual figures may not necessarily add up to Total.
(Note 2) Short-term assets held by each fund were classified into relevant asset classes in principle.

The amount of funds allocated and withdrawn by asset class (for FY2018)(Unit: JPY100M)

Amount of funds
allocated and withdrawn

Domestic bonds

Domestic equities

-524

-110

Foreign bonds
83

Foreign equities-580(Note) The above figures represent the total amount of fund flows related to the allocation and withdrawal of funds (rebalancing) conducted for the
purpose of changing the asset mix and pension benefit payment (cashing-out).

11

Valuation
gains/losses

Employees' Pension Insurance Benefit Association Reserve Fund(National Federation of Mutual Aid Associations for Municipal Personnel)

Fees
The amount of fees totaled about JPY3.4 billion in fiscal year 2018.
The fee rate relative to the value of investment assets came to 0.06%.
(Unit: JPY100M, %)FY2018Fees

Fee rate

Domestic bonds

8

0.03

Domestic equities

10

0.08

Foreign bonds

5

0.06

Foreign equities

11

0.09

Overall assets

34

0.06

(Note 1) Fees include management fees and custodian fees related to investment.
(Note 2) The amount of fee is rounded off to the nearest hundred million yen.
(Note 3) Fee rate = fee amount/month-end market value average balance12Employees' Pension Insurance Benefit Association Reserve Fund(National Federation of Mutual Aid Associations for Municipal Personnel)

Benchmark portfolio
1. Benchmark portfolio (asset mix)
Domestic bonds

Domestic equities

Foreign bonds

Foreign equities

Asset mix

35%

25%

15%

25%

Deviation tolerance

±15%

±14%

±6%

±12%

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Employees' Pension Insurance Benefit Association Reserve Fund(National Federation of Mutual Aid Associations for Municipal Personnel)

Approach to risk management○ Generally speaking, "risk" refers to danger or a possibility of negative impact. In the field of asset investment, risk means
uncertainty of returns, etc. associated with market volatility or other factors.
○ Risks in the field of asset investment include interest rate fluctuation risk, price fluctuation risk, credit risk and liquidity risk.
Therefore, it is important to understand the magnitude and multifaceted impacts of various risks commensurate withinvestment from a long-term perspective.
○ The National Federation of Mutual Aid Associations for Municipal Personnel (hereinafter the “Federation”) appropriately
implements risk management concerning investment in accordance with the implementation policy for risk management
concerning investment of the fund in consideration of the following points: that investment of funds should be made safely
and efficiently from a long-term perspective; that diversified investments should be maintained in principle; and that therelationship between liabilities and the funds of all Local Public Service Mutual Aid Associations in the future should betaken into consideration.

Implementation policy for risk management concerning investment of the fund (extract)
Basic approach concerning risk management
The National Federation of Mutual Aid Associations for Municipal Personnel appropriately conducts risk management related
to the investment of funds in light of the following matters:(i) Investment of funds should be made safely and efficiently from a long-term perspective.
(ii) A benchmark portfolio should be developed and investment of funds should be made based on the benchmark portfolio
through appropriate diversification across multiple asset classes with different risk/return profiles and othercharacteristics (hereinafter referred to as "diversified investment") in principle.
(iii) Each fund should be invested in consideration of the relationship between all Local Public Service Mutual Aid
Associations’ liabilities and the funds of all Local Public Service Mutual Aid Associations in the future.

14

Employees' Pension Insurance Benefit Association Reserve Fund(National Federation of Mutual Aid Associations for Municipal Personnel)

Risk management efforts○ Management of the deviation of the asset mix• Investment based on the benchmark portfolio requires the management of various risk factors. Therefore, in order to secure
returns in line with the benchmark portfolio from the long-term perspective, it is important, in particular, to manage the degreeof deviation of the asset mix ratio of the fund from that of the benchmark portfolio.
• Specifically, as the asset mix constantly changes due to asset price fluctuations, the Federation keeps track of the status of
the deviation of the asset mix of the fund from that of the benchmark portfolio, and manages the actual portfolio so as to keep
the degree of deviation within a certain range (deviation tolerance). In this way, the Federation checks whether or not there areproblems such as a deviation from the benchmark portfolio in excess of the deviation tolerance.
○ Monitoring of market risk, etc.
• The Federation identifies downside risks by using the value at risk approach, which measures the maximum foreseeable
amount of losses expected under certain conditions, and the simulation of impact on funds in the case of fluctuation of shareprice and interest rate within a certain range (a stress test).
• As it also uses active investment in its investment of funds, the Federation seeks to earn an excess rate of return over thebenchmark by diversifying investment strategies and investment issues within each asset class. Therefore, the Federation
monitors the status of market risk (price volatility risk, etc. in each asset market), credit risk (default risk), etc. with respect toeach asset class, mainly from the viewpoint of difference from the benchmark for each asset class.
○ Management of entrusted investment management institutions, etc.
The Federation manages liquidity risk (risk that purchasing and selling assets will become difficult due to a decline in trading
volume) from the viewpoint of revising asset allocations (rebalancing) and smooth conversion of assets into cash. In addition, as
the Federation entrusts the operation of some investment-related activities to external institutions, it monitors the status ofmanagement (status of risk management and asset administration) of the institutions to which it entrusts asset management orasset administration (entrusted investment management institutions and asset administration institutions), from the viewpoint of
ensuring the smooth operation.
○ Reporting on the status of risk management and improvement measures implemented
The status of risk management and improvement measures implemented are reported to the General Assembly and the FundManagement Committee.

15

Employees' Pension Insurance Benefit Association Reserve Fund(National Federation of Mutual Aid Associations for Municipal Personnel)

Status of risk management (overall assets)○ Asset mix and estimated tracking error
In fiscal year 2018, the shares in the asset mix concerning all asset classes—domestic bonds, domestic equities, foreign
bonds and foreign equities—stayed within the deviation tolerance.
The estimated tracking error for the assets overall generally stayed stable.
【Changes in the asset mix】
Domestic bonds【Changes in the estimated tracking error】

Domestic equities

55%

(%)

45%

Deviation tolerance (upper limit: 50%)

Deviation tolerance (upper limit: 39%)

50%

40%

45%

35%

40%

3.0
2.5

2.0

30%

Benchmark portfolio (35%)

Benchmark portfolio (25%)

35%

25%

30%

20%

25%

15%

20%

10%

1.5
1.0
0.5

Deviation tolerance (lower limit: 20%)
15%

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

Jan

Feb

Mar

Deviation tolerance (lower limit: 11%)

0.0

5%
Apr

May

Jun

Foreign bonds

Jul

Aug

Sep

Oct

Nov

Dec

Jan

Feb

Mar

40%

Deviation tolerance (upper limit: 21%)
21%

35%

Deviation tolerance (upper limit: 37%)

19%
30%
17%

Benchmark portfolio (25%)

Benchmark portfolio (15%)
15%

25%

13%

20%

11%
15%
9%

Deviation tolerance (lower limit: 9%)

5%

10%

Deviation tolerance (lower limit: 13%)

5%
Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

Jan

Feb

Foreign equities

23%

7%

Apr

Dec

Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

16

Dec

Jan

Feb

Mar

(Note) The fluctuations of the estimated tracking
error reflect changes in short-term funds, etc.
due to payments of pension benefits.

MarEmployees' Pension Insurance Benefit Association Reserve Fund(National Federation of Mutual Aid Associations for Municipal Personnel)

Investment in alternative assets
The Federation started alternative investment in fiscal year 2018 in order to promote diversified investment of the
Employees' Pension Insurance Benefit Association Reserve Fund for the purpose of ensuring safe and efficient investment
management of the fund from the long-term perspective.
Investment policy pertaining to diversification of eligible investment instruments(investment in alternative assets) (Excerpt)1.

Definition of diversification of eligible investment instruments
i. Definition of diversification of eligible investment instruments"Diversification of eligible investment instruments" means making investments in assets whose characteristics, such as the risk/return profiles, are different from those of
traditional assets such as equities and bonds ("alternative assets").
ii. Scope of alternative assets
Alternative assets are assets such as real estate, infrastructure and private equities, and negotiable securities, trust beneficiary rights and other assets backed by thoseassets.

2.

Purpose of diversification of eligible investment instruments
Diversification is used to promote diversified investment of the Employees' Pension Insurance Benefit Association Reserve Fund for the purpose of investing the funds safely
and efficiently from a long-term perspective.

3.

Classification of alternative assets in the benchmark portfolio
i. Classification of alternative assets in the benchmark portfolio
Alternative assets are classified into domestic bonds, domestic equities, foreign bonds or foreign equities according to their risk/return profiles and other characteristics.
ii. Share of alternative assets in the asset mix of the portfolio
The share of alternative assets in the asset mix is limited to a maximum of 5% of the overall assets of the Employees' Pension Insurance Benefit Association Reserve Fund.

4.

Matters to note when diversifying eligible investment instruments
The National Federation of Mutual Aid Associations for Municipal Personnel (hereinafter referred to as the "Federation") takes note of the following matters when diversifying
eligible investment instruments.
i. In principle, investment shall be diversified between traditional assets, such as equities and bonds, and alternative assets and across different types of alternative assets.
ii. Diversification shall made after the effects of diversified investment have been recognized and sufficient evidence to support the expectation that an excess returns can beobtained has been obtained.
iii. Because alternative assets are different from traditional assets in many points, such as marketability, profitability, individuality, transaction cost, and information disclosure
status, the Federation shall conduct a study with due consideration of the development of the market environment, including the steady improvement of the earning capacityof each asset and the development of the secondary market.
iv. The Federation shall make alternative investment after developing the investment and risk management systems necessary for the investment (including hiring personnel
with advanced expert skills).
v. The Federation shall use the expert knowledge of the Fund Management Committee.

17

Employees' Pension Insurance Benefit Association Reserve Fund(National Federation of Mutual Aid Associations for Municipal Personnel)

Stewardship activities (1)1. Virtuous circle which the Federation aims to create through stewardship activities○ Through its stewardship activities, the Federation expects to create the virtuous circle described below by encouraging investee
companies to take necessary actions via entrusted investment management institutions. The Federation ultimately aims to increase
the investment return of individual funds by raising the enterprise value of investee companies.

Increase of corporate value of investee
companies (increase of share price)≒Improvement of investment return
Constructive dialogues(Engagement)

Investee companies

Entrusted investment
management
institutions

Exercise of voting rights
Enhancement ofenterprise values≒Improvement ofinvestment return

Report of activities

Federation
Report ofactivities

Members

Presenting guidelines
including the Guidelines for
Exercising Shareholders'Voting Rights
Research and hearing on
activities

Past efforts• May 2010

Established the Guidelines for Exercising Shareholders' Voting Rights, announcing the Federation's approaches to equity investment and exercise of voting rights
as a beneficial shareholder.

• May 2014

Announced its acceptance of the Japan's Stewardship Code.
Established the Corporate Governance Principles, announcing the Federation's approach for corporate governance necessary for the long-term enhancement ofstock values.

• October 2015

Established the Basic Policy for Management and Investment of Funds associated with the integration of the employee pension plans.

• November 2017

Announced the acceptance of the Revised SSC

18

Employees' Pension Insurance Benefit Association Reserve Fund(National Federation of Mutual Aid Associations for Municipal Personnel)

Stewardship activities (2)2. Efforts in fiscal year 2018
○ As a part of its stewardship activities for fiscal year 2018, the Federation conducted surveys and hearings for entrusted investment
management institutions in relation to the situations of exercise of shareholders' voting rights and engagement activities. In addition,
the Federation encouraged them to engage in stewardship activities in an effective way adapted to their respective investment styles
and resources. Further, the Federation made periodical reports for fiscal year 2018.
○ On February 1, 2019, the Federation publicized its Annual Stewardship Activity Report FY2018 on its website.
Surveys and hearings of entrusted investment management institutions
Subjects

PeriodTargets

Survey on exercise of voting rights

August 2018

Survey on performance of stewardship
activities

September 2018

Hearing related to the two subjects
mentioned above

Main subjects

Entrusted investment management institutions fordomestic and foreign equities(12 companies for domestic equities and 8 companies forforeign equities)

Verification of:results of exercise of voting rights
structure for exercise of voting rights

12 entrusted investment management institutions fordomestic equities

Verification of:structure for managing conflicts of interest
details of engagement
strengthened efforts, challenges and issues
reason for the decision to exercise voting rights in relation to
specific, individual proposals

October 2018

(Note 1) The following twelve companies are entrusted with the investment management of domestic equities: Asset Management One Co., Ltd., Invesco Asset Management (Japan) Limited, CapitalInternational K.K., Schroder Investment Management (Japan) Limited, Nikko Asset Management Co., Ltd., Nissay Asset Management Corporation, Nomura Asset Management Co., Ltd., Mizuho Trust &Banking Co., Ltd., Sumitomo Mitsui Asset Management Company, Limited, Sumitomo Mitsui Trust Bank, Limited, Mitsubishi UFJ Trust and Banking Corporation and Resona Bank, Limited(Note 2) The following eight companies are entrusted with the investment management of foreign equities: Wellington Management, MFS Investment Management, State Street Global Advisors, SEIRYU
Asset Management Ltd., Tokio Marine Asset Management Co., Ltd., Natixis Investment Managers, BlackRock Japan Co., Ltd. and Sumitomo Mitsui Trust Bank, Limited

Periodical reports related to stewardship activities
Subjects

PeriodTargets

Main subjects

Report of the Federation's stewardship
activity in its Review of Operations

July 2018(Publicized on the Federation's website)

Stewardship activity of the Federation

Report of the Federation's stewardship
activity in its PR papers

February 2019

Executives and employees of the Federation
Executives and employees of member associations

Stewardship activity of the Federation

Providing information on an as-neededbasis in addition to regular reports at
executive meetings.

As necessary

Executives of the Federation
Executives and employees of member associations

Federation's approach to stewardship activities and ESG investment

19

Employees' Pension Insurance Benefit Association Reserve Fund(National Federation of Mutual Aid Associations for Municipal Personnel)

Stewardship activities (3)3. Results of monitoring of stewardship activities conducted by entrusted investment management institutions(i) Constructive "purposeful dialogue (engagement)" with investee companies○ Differences in engagement between active and passive investments• Japan's Stewardship Code stipulates that in passive investment, investment management institutions should conductengagement and exercise voting rights from a medium- to long-term viewpoint. In light of that, the Federation conducted asurvey as to differences in engagement between active and passive investments at entrusted investment management
institutions.
• As a result, it was confirmed that because of differences in the purpose of engagement, there were various differences
between active and passive investments, for example in terms of the target companies of engagement, the contents ofengagement and the system of evaluating engagement staff members.
Major differences in engagement between active and passive investments
Items

Active investment

Passive investment

PurposeIncreasing medium- to long-term enterprise value (increasing thereturn from investee companies)

Increasing medium- to long-term enterprise value (increasing thereturn from the entire stock market)

Target companies ofengagement

Investee companies and companies surveyed by sector analysts

Selecting from all companies those which may have a large impact
on the market because of their size or if their business performance
weakens or a case of misconduct occurs.

Contents of dialogue

Selecting themes expected to lead to an increase in the return
through the resolution of problems on a company-by-company
basis. The scope of themes ranges widely, from management
principles to financial strategy and governance.

Selecting themes focusing on common problems that obstruct anincrease in enterprise value, such as low profitability andgovernance system issues.

Personnel
evaluation ofengagement staff
members

Focusing mainly on quantitative evaluation based on performance(however, the weight of qualitative evaluation is also growing).

Focusing mainly on qualitative evaluation, which examines
engagement processes.
Engagement staff members find an incentive in conducting
engagement in sectors attracting attention.

(Note) The above are examples of major opinions collected through hearings with entrusted investment management institutions.

20

Employees' Pension Insurance Benefit Association Reserve Fund(National Federation of Mutual Aid Associations for Municipal Personnel)

Stewardship activities (4)○ Contents of engagement• The contents of engagement and major cases that led to some results are as described in the table below.
• In addition, there were some cases in which multiple entrusted investment management institutions conducted engagementwith the same company on the same theme.
Dialogue
items

Capital policy

Businessstrategy

Environmental
issuesSocial issues

Corporate
governance

Information
disclosure

Company

Specifics

Dialogue

As the uptrend in cash holdings was conspicuous, the investment management institution conveyed concerns over the continuing accumulation of cash. The institution
also pointed out the need for the company to specify its approach to cash positions in order to ensure efficient cash management.

Results

The company replied that as it was objectively true that it was holding a large amount of cash, it regarded how to manage capital policy as a challenge under the next
medium-term management plan. In a management plan announced later, the company specified the cash level that the management team considers to be necessary.

Dialogue

Although the company is gradually shifting to a growth strategy in response to the progress in the cost structure reform of its main business, its newly announced plan tostrengthen the business through M&A was short on specifics, as it merely indicated target areas and the fund amount. The investment management institution pointed
out the need to present goals for which progress can be identified from the outside.

Results

Although the company set immediate numerical targets for individual business divisions, it will continue considering goals for which progress can be continuously
identified from the outside. While implementing the medium-term management plan, the company's attitude to sharing the progress in implementation with investorschanged. Dialogue will be continued with a view to increasing enterprise value.

Dialogue

Amid growing antipathy toward coal as general-use fuel, the investment management institution expressed hope that the company would improve its information
disclosure on the exposure of its businesses to general-use coal, management officers' awareness and their approach to risk management.

Results

As the company was receiving similar concerns and requests from an increasing number of other investors, it expressed willingness to share the concerns companywide and consider what can be disclosed.

Dialogue

Regarding the company's new nursing care business, the investment management institution repeatedly conducted one-on-one dialogue related to business strategy
from the viewpoint of simultaneously addressing social issues and increasing enterprise value. The institution pointed out the importance of securing nursing carepersonnel and improving workplace productivity in order to achieve sustainable growth.

Results

The company replied that it shared the recognition of the need to secure nursing care personnel and improve workplace productivity. While the dialogue was ongoing,
the company turned profitable in fiscal 2017, earlier than planned, due to an improvement in the occupancy rate in the nursing care business.

TSE 1st section
Rubberproducts

Dialogue

The investment management institution set challenges for the company, including the separation of execution and supervision of business management, reduction of
the number of inside directors, an increase in the number of outside directors, and appointment of women to the post of director and conducted dialogue about thosechallenges.

Results

At a general shareholders' meeting, the number of inside directors was reduced from 9 to 6, while the number of outside directors was increased from 3 to 4, with theratio of outside directors rising from 25% to 40%. The institution regards this as an improvement of the corporate governance system.

TSE 1st section
Information andcommunications

Dialogue

Although the company made a series of announcements concerning the launch of new businesses, it failed to indicate a strong commitment to future profit growth,
resulting in a stock price plunge. The investment management institution conveyed its concerns about the company's failure to indicate a stance of sharing a mediumto long-term business vision through explanations of details, instead of explaining the short-term deterioration of business performance due to prior investments, andcalled for improvements.

Results

At the earnings briefing session, the company provided fairly satisfactory explanations about the purpose and specifics of its prior investments and its future vision.

TSE 1st section
Services

TSE 1st section
Electricalequipment

TSE 1st section
MachineryTSE 1st section
Insurance21

Employees' Pension Insurance Benefit Association Reserve Fund(National Federation of Mutual Aid Associations for Municipal Personnel)

Stewardship activities (5)(ii) Entrusted investment management institutions' priorities in stewardship activities○ The Federation conducted a survey with entrusted investment management institutions on their priorities in fiscal year 2017.
○ As a trend, many entrusted investment management institutions stated that they allocated business resources to engagement andorganizational system measures. Among major examples of engagement are conducting collective engagement and strengthening
information sharing. Among major examples of organizational measures was increasing the number of engagement staff to strengthen
engagement.
○ Through an exchange of opinions with entrusted investment management institutions, the Federation recognized that the institutions
were gradually developing the preparedness to conduct stewardship activities. As entrusted investment management institutions arestrengthening efforts in various fields, the Federation is looking forward to the results of future stewardship activities.

Fields of stewardship activity to which entrusted investment management institutions devoted efforts
10
9
8
7
6
5
4
3
2
1
0

(Number of cases)

9
7
6

2
1
Organizational
systemInformation
disclosure

Engagement

Voting rights

Others(Note) The above figures were tabulated by the Federation based on questionnaires
and hearings with 12 entrusted investment management institutions.

22

Employees' Pension Insurance Benefit Association Reserve Fund(National Federation of Mutual Aid Associations for Municipal Personnel)

Stewardship activities (6)4. Exercise of voting rights(i) Exercise of voting rights○ In order to fully achieve returns on equity investments, it is necessary to ensure that investee companies secure profits fora long time and manage their businesses paying attention to the interests of shareholders to the maximum degree.
Exercising of voting rights is an important means to enhance shareholder value, and the Federation encourages business
management which would contribute to the long-term enhancement of shareholder value through appropriately exercising
voting rights, in relation to all issues held in principle.
○ More concretely, in principle, entrusted investment management institutions exercise voting rights according to the policyon the exercise of shareholders' voting rights established by the institutions in line with the intent of the Guidelines for
Exercising Shareholders' Voting Rights of the Federation and reviewed by the Federation. In addition, the Federation seeks
reports from the entrusted investment management institutions on the status of exercising voting rights and considers themas part of the assessment of the institutions.
(ii) Exercise of voting rights in fiscal year 2017
○ For the exercise of voting rights at general meeting of shareholders of companies which settled accounts in fiscal year2017 (between April 2017 and March 2018), the Federation received reports from its entrusted investment management
institutions on the results of exercising voting rights, reason for voting against the proposal, and organizational structure forexercise of voting rights. In addition, the Federation confirmed that voting rights were exercised in an appropriate way
according to the Guidelines for Exercising Shareholders' Voting Rights of the Federation through hearings.

23

Employees' Pension Insurance Benefit Association Reserve Fund(National Federation of Mutual Aid Associations for Municipal Personnel)

Stewardship activities (7)(iii) Results of the exercise of voting rights concerning domestic equities(companies with accounting settlement between April 2017 and March 2018)
Items on agenda
Total(Shareholder proposal)

Total

Vote for(Unit: Number of occasions)

Vote against
Rate

Rate

Vote-against rate in
the previous year

26,422(810)

20,383(91)

77.1%(11.2%)

6,039
(719)

22.9%
(88.8%)

21.5%(94.8%)

9,166
66,607
19,705
4,753
6,517
4,461
1,533
791
569
37
5,580
191
24
11
4
291
121
835
2,133
190
193

6,000
55,983
16,386
3,974
5,676
3,657
1,292
606
314
36
5,209
16
24
8
2
289
119
642
1,542
159
151

65.5%
84.0%
83.2%
83.6%
87.1%
82.0%
84.3%
76.6%
55.2%
97.3%
93.4%
8.4%
100.0%
72.7%
50.0%
99.3%
98.3%
76.9%
72.3%
83.7%
78.2%

3,166
10,624
3,319
779
841
804
241
185
255
1
371
175
0
3
2
2
2
193
591
31
42

34.5%
16.0%
16.8%
16.4%
12.9%
18.0%
15.7%
23.4%
44.8%
2.7%
6.6%
91.6%
0.0%
27.3%
50.0%
0.7%
1.7%
23.1%
27.7%
16.3%
21.8%

33.2%
14.5%

By subject
Board of directors/directors (on a main proposal basis)【Reference 】Appointment of directors (on a subsidiary proposal basis)【Reference】 Appointment of outside directors (on a subsidiary proposal basis)

Board of auditors/auditors (on a main proposal basis)【Reference 】Appointment of auditors (on a subsidiary proposal basis)【Reference】 Appointment of outside auditors (on a subsidiary proposal basis)

Director remuneration
Director bonus
Retirement allowances
Appropriation of surplus (accompanied by a decrease in capital reserves)
Appropriation of surplus (not accompanied by a decrease in capital reserves)

Capital structure (takeover defense measures)
Capital structure (capital increase or reduction (other than third-party allotment))

Capital Structure (capital increase (third party allotment of shares))

Capital structure (acquisition of own shares)
Capital structure (others)
Business restructure
Incentives improvement for executives
Amendment to articles of incorporation
Composition of the board of directors
Other proposals

The total number of proposals was counted on a main proposal basis.

24

12.8%
10.6%

16.4%

6.5%
64.4%
0.0%
28.6%
100.0%
0.4%
1.8%
24.9%
35.0%

Employees' Pension Insurance Benefit Association Reserve Fund(National Federation of Mutual Aid Associations for Municipal Personnel)

Stewardship activities (8)(iv) Results of the exercise of voting rights concerning foreign equities(companies with accounting settlement between April 2017 and March 2018)(Unit: Number of occasions)
Items on agenda

Total

Vote for

Vote against

Rate
Total

Rate

Vote-against rate in
the previous year

16,585

14,481

87.3%

2,104

12.7%

13.6%

(1,530)(610)(39.9%)(920)(60.1%)(58.3%)

Board of directors/directors (on a main proposal basis)

4,914

4,458

90.7%

456

9.3%

【Reference】(on a subsidiary proposal basis)

22,417

21,543

96.1%

874

3.9%

(on a main proposal basis)

248

245

98.8%

3

1.2%

(on a subsidiary proposal basis)

265

262

98.9%

3

1.1%

3,123

2,847

91.2%

276

8.8%

14.6%

325

325

100.0%

0

0.0%

0.6%

1,727

1,467

84.9%

260

15.1%

17.0%

Takeover defense measures

181

168

92.8%

13

7.2%

8.6%

Capital increase or reduction

774

609

78.7%

165

21.3%

24.0%

Third party allotment of shares

297

295

99.3%

2

0.7%

0.0%

Acquisition of own shares

300

298

99.3%

2

0.7%

2.3%

Business restructure

187

183

97.9%

4

2.1%

2.2%

Incentives improvement for executives

688

532

77.3%

156

22.7%

12.3%

5,373

4,424

82.3%

949

17.7%

20.0%

(Shareholder proposal)
By subject

Board of auditors/auditors【Reference】

Director remuneration, etc.
Appropriation of surplus
Capital structure

Other proposals

9.9%

0.3%

(Note 1) For investee companies in some countries, voting rights are not exercised considering costs for exercise and share blocking.
(Note 2) The total number of proposals was counted on a main proposal basis.

25

Employees' Pension Insurance Benefit Association Reserve Fund(National Federation of Mutual Aid Associations for Municipal Personnel)

Stewardship activities (9)(v) Major trends in the results of exercise of voting rights and proposals○ Domestic equities• Proposals for which the vote-against ratio was high mainly concerned board of director/directors, retirement allowances,and takeover defense measures.
• The vote-against ratio for proposals concerning takeover defense measures rose steeply, as it did in the previous fiscal
year (49.7% in FY2016→64.4% in FY2017→91.6% in FY2018). The main reason for the increase is that some entrusted
investment management institutions tightened the criteria for the exercise of voting rights. On the other hand, the numberof proposals declined. While the main factor of the decline is a decrease in the number of companies that were nearing
the date of updating their respective takeover defense plans, another factor is that some companies abolished(discontinued) takeover defense measures.
• The vote-against ratio for shareholder proposals declined slightly (from 94.8% to 88.8%). The main reason for the decline
is an increase in proposals expected to lead to an improvement in corporate governance. The number of proposals also
declined because of a decrease in the number of proposals per proposer.
○ Foreign equities• Proposals for which the vote-against ratio was high mainly concerned capital increase or reduction and incentives
improvement for executives.
• The vote against ratio for proposals concerning director remuneration declined (from 14.7% to 8.8%). Among the main
factors were an increase in proposals concerning remuneration that contribute to shareholders' value and an
improvement in disclosure.
• Proposals concerning environmental (E) and social issues (S) increased. In the United States, the number of shareholder
proposals concerning environmental and social (E&S) issues hit a record high of 485. Regarding proposals concerning
directors, a surveillance system (independence and skills) that can deal with risks related to non-financial factors,
including ESG factors, has come to be appreciated.

26

Employees' Pension Insurance Benefit Association Reserve Fund(National Federation of Mutual Aid Associations for Municipal Personnel)

Stewardship activities (10)5. Future initiatives
Through an exchange of opinions with entrusted investment management institutions, the Federation will revise its
stewardship activities as appropriate.

○ Revision of the Guidelines
The Federation will consider revising the Corporate Governance Principles and the Guidelines for Exercising Shareholders'Voting Rights as necessary while taking laws and regulations and the social circumstances into account, with a view to
conducting more effective stewardship activities.
○ Consideration of how to evaluate stewardship activities conducted by entrusted investment management institutions
The Federation recognizes the need for an evaluation system that takes differences in the business model and productlineup between entrusted investment management institutions into account, rather than a system that conducts evaluation
based on "one size fits all" criteria. The Federation will consider how to evaluate entrusted investment management
institutions while continuing to conduct monitoring as to whether they are conducting effective stewardship activities.
○ Continuous information gathering
The Federation will gather information by holding meetings with other institutional investors and workshops inviting external
experts as lecturers and by participating in various seminars, including the Business and Asset Owners' Forum, which ishosted by GPIF.
○ Strengthening of information feedback
In addition to widely providing information through its website, the Federation will make further efforts to deepen
understanding on its stewardship activities through periodic reports to members (beneficiaries).

27

Employees' Pension Insurance Benefit Association Reserve Fund(National Federation of Mutual Aid Associations for Municipal Personnel)

Review of manager structure
1. Selection of entrusted investment management institutions
In order to secure stable income gains, the Federation invited public applications for entrusted investment management
institutions concerning alternative investment (real estate) and selected three funds. In the process of selection, theFederation conducted the overall assessment of past performances, investment philosophy, investment structure andinvestment process through documentary examinations and hearings.
2. Selection of asset administration institutions
As a result of the invitation for public applications and evaluation based on document screening and hearings, Mizuho
Trust & Banking was selected as the asset administration institution concerning alternative investment.

3. Annual comprehensive evaluation
There was no cancellation based on annual comprehensive evaluation as of the end of fiscal year 2017.

28

Employees' Pension Insurance Benefit Association Reserve Fund(National Federation of Mutual Aid Associations for Municipal Personnel)

Administration and evaluation of entrusted investment management institutions, etc.
1. Administration and evaluation of entrusted investment management institutions
For the administration of entrusted investment management institutions, the Federation seeks monthly reports fromthem on investment performance and the status of risk, verifies compliance with investment guidelines, and receives abriefing at regular meetings on the overview of investment results and future investment policies.
For the assessment of entrusted investment management institutions, the Federation performs a qualitative assessment(investment structure, investment process, structures for risk management and compliance) and quantitative assessment(excess return and tracking error in the case of passive investments, and excess return and information ratio in the case ofactive investments) as of the end of each fiscal year.
2. Administration and evaluation of asset administration institutions
For the administration of asset administration institutions, the Federation seeks monthly reports from them on the statusof administration of assets, verifies compliance with asset administration guidelines, and receives a briefing at regularmeetings.
For the evaluation of asset administration institutions, the Federation performs qualitative assessment based onorganizations for business operation, asset administration system, etc.

29

Employees' Pension Insurance Benefit Association Reserve Fund(National Federation of Mutual Aid Associations for Municipal Personnel)

Section 2 Business and Fund Investment of National Federation of Mutual Aid
Associations for Municipal Personnel

30

Employees' Pension Insurance Benefit Association Reserve Fund(National Federation of Mutual Aid Associations for Municipal Personnel)

Organizational structure (1)
1.

2.

3.

4.

5.

6.

7.

Organization
As of April 1 of 2019, the Federation has executives consisting of one president, 13 managing directors and three auditors, including one full-time managing
director and one full-time auditor with academic knowledge. The maximum number of employees is 120.
The organization consists of the General Affairs Department (General Affairs Division, Planning Division, Insurance Division and Welfare Division), the Finance
Department (Accounting Division, Investment Planning Division, In-house Investment Division and Fund Management Division), the Pension Department (Pension
Planning Division, Pension Information System Division, Pension Inspection Division, Pension Benefit Division and Retirement Pension Benefit Division), as wellas the Investment Risk Management Office and Audit Office.
The Investment Risk Management Office was newly established on April 1, 2018, as a section separate from the Finance Department from the standpoint of
improving and reinforcing risk management and the mutual checks and balances function.
General Assembly
The General Assembly consists of 61 members, 47 of which are elected by mutual vote the Presidents of associations which are the members of the Federation(hereinafter the "Member Associations"). Among the members of the General Assembly, 14 are elected by mutual vote of the Executive Directors of the Member
Associations.
Revision of the articles of incorporation, the formulation and revision of the rules of operations, annual business plans, budgets and account settlement, disposalof important assets and assumption of significant debt are subject to resolution of the General Assembly.
Fund Management Committee
This is a committee consisting of members who possess academic knowledge or practical experience in areas such as the pension system, economics, financeand fund management, which studies expert matters pertaining to the establishment and revision of basic policies and the administration and investment of the
Employees' Pension Insurance Benefit Association Reserve Fund, Annuity Retirement Benefit Association Reserve Fund and Transitional Long-term Benefit
Association Reserve Fund (hereinafter the "Funds").
Long-term Benefit Fund Committee
This is a committee also participated in by the representatives of Member Associations, which conducts research and study relating to basic policies forinvestment of Funds and other important matters.
Operational Management Committee
This is a committee also participated in by the representatives of Member Associations, which conducts research and monitoring of business administration andfund management implemented by the Federation and the Member Associations, as well as assessment of business.
Fund Investment Review Council
This is a council for ensuring the safe and effective investment of surplus from business operation of each of the accountings of the Federation, discussing
decision-makings as to the investment of funds. This council is constituted by a full-time managing director (hereinafter a “Senior Managing Director”), theSecretary-General, the General Manager of Finance Department, the Chief Investment Specialist, the Senior Investment Specialist, the Manager of Investment
Planning Division, the Manager of In-house Investment Division, the Manager of Fund Management Division, the Manager of Investment Risk Management Office,and other members as may be deemed necessary. In principle, the council regularly meets once a month, and from time to time depending on the necessity.
Investment Risk Management Committee
This is a committee to conduct activities such as verification, reporting and discussion so as to ensure appropriate risk management related to fund investment.
This committee is constituted by the Senior Managing Director, the Secretary-General, the Director-General of Finance Division, the Senior Investment Analyst,
the Senior Investment Analyst, the Manager of Investment and Planning Division, the Manager of In-house Investment Division, the Manager of Investment andManagement Division, the manager of Investment Risk Management Office and other members as may be deemed necessary. In principle, the council regularly
meets once a month, and from time to time as depending on the necessity.

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Employees' Pension Insurance Benefit Association Reserve Fund(National Federation of Mutual Aid Associations for Municipal Personnel)

Organizational structure (2)8. Organizational structure of Federation
Report of status ofinvestment, risk
management, etc.

Fund Management
Committee

GeneralAssembly

Use of expert
knowledge(Discussion by financial experts)
Basic policy, benchmark portfolio,risk management, investment
methods, etc.

As of April 1, 2019

Long-term Benefit Fund
Committee(Discussion by representatives of Member
Associations, etc.)

Operational Management
Committee(Monitoring by certified public accountants, etc.)

Recommendation

President

Auditor
Audits of businesses

Managing
Director

Fund Investment Review Council(Check and discussion by officers
and employees [monthly])
Status of investment, etc.

SecretaryGeneral

Investment Risk
Management Committee(Check and discussion by officers
and employees [monthly])
Risk management, etc.

Cooperation

Audit Office
Investment Risk
Management OfficeFinance Department
Chief Investment Specialist
Senior Investment Specialist

Investment Planning Division

In-house Investment Division

Fund Management Division

Basic policy, funding plan, benchmark portfolio

In-house investment

Entrusted investment management

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Risk management

Employees' Pension Insurance Benefit Association Reserve Fund(National Federation of Mutual Aid Associations for Municipal Personnel)

Fund Management Committee (1)○ Fund Management Committee
The Federation has established the Fund Management Committee, which is comprised of members who possess academic
knowledge or practical experience in areas such as the pension system, economics, finance and fund management. Members areappointed by the President.
As an advisory body for the President, the Fund Management Committee has a duty to conduct research on basic issues relating tofund management, discuss matters necessary for the achievement of the purpose to contribute to the safe and efficient fundmanagement, and to report the findings to the President. The Committee is also to give advice to the President for any other importantmatters relating to the fund management.
For expert matters relating to the management and investment of Funds, including the adoption and amendment of basic policies forthe management and investment of Funds including benchmark portfolio, deliberation at the Fund Management Committee is required.

List of Committee Members (As of April 2019)

Chairperson

Kai Yoshitaka

Professor, The Kyoto College of Graduate Studies for Informatics

Kato Yasuyuki

Project Professor, Graduate School of Management, Tokyo Metropolitan
University
Adjunct Professor, Graduate School of Management, Kyoto University

Tokushima Katsuyuki

Chief Fixed Income Analyst, Financial Research Department, NLI
Research InstituteToshino Masashi

Professor, Faculty of Economics, Seikei University

Miyai Hiroshi

President and Representative Director, Asset Management Life

Wada Kenji

Professor, Faculty of Business and Commerce, Keio University

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Employees' Pension Insurance Benefit Association Reserve Fund(National Federation of Mutual Aid Associations for Municipal Personnel)

Fund Management Committee (2)○ Meetings of the Fund Management Committee (fiscal year 2018)

Meeting
number

41st

Meeting date

September 27, 2018

Main subjects
•
•
•
•
•
•
•

42nd

March 26, 2019

•
•
•
•
•

Consultation paper
Issues for deliberation in the current fiscal year and method of discussion
Examination of the benchmark portfolio for the Annuity Retirement Benefit
Association Reserve Fund
Recommendation paper (draft)
Status of investment of individual Funds in the first quarter of FY2018
Examination of the benchmark portfolio for the Employees' Pension
Insurance Benefit Association Reserve Fund
Examination of the benchmark portfolio for the Transitional Long-term
Benefit Association Reserve Fund
Discussion related to the review of the benchmark portfolio for the Annuity
Retirement Benefit Association Reserve Fund
Recommendation paper (draft)
Approach to safe and efficient investment of individual Funds
Status of investment of individual Funds in FY2019
Status of investment of individual Funds in the third quarter of FY201834

Employees' Pension Insurance Benefit Association Reserve Fund(National Federation of Mutual Aid Associations for Municipal Personnel)

Basic approach to investment○ As a basic policy, the Federation shall make investments for the purpose of contributing to the stable management of the
Employees Pension Insurance (“EPI”) scheme operations in the future, from a long-term perspective and in a stable andefficient manner for the benefit of the insured of the EPI.
○ In the management of funds, investments shall be made in a way that ensures appropriate diversification across multiple
assets with different risk/return profiles and other characteristics.
○ In addition, in order to ensure investment returns which is set as the investment targets of managed funds provided in
Article 79-6, Paragraph (1) of the EPI Act, a benchmark portfolio shall be set and appropriately managed, and efforts shallbe made to earn the benchmark return for each asset class, as well as generating benchmark returns for each asset classover the long term.
Basic Policy for Management and Investment of Employees' Pension Insurance Benefit Association Reserve Fund (Extract)
1. Basic Policy
Especially keeping in mind that the Employees' Pension Insurance Benefit Association Reserve Fund is part of insurance premiums collectedfrom insured persons of the EPI and valuable resources for funding future pension benefits, the funds shall be managed with the objective ofcontributing to the stable operation of EPI schemes in the future by investing it safely and efficiently "solely for" ("for" in the case of investing in linewith the objectives of the Act under Article 79-3, Paragraph (3), of the EPI Act) the interests of insured persons of the EPI from the long-term
perspective.
Accordingly, the Employees' Pension Insurance Benefit Association Reserve Fund shall be managed and invested with an asset mix establishedfrom the long-term perspective (the "benchmark portfolio") based on appropriately diversifying investments in multiple assets that differ inrisk/return and other characteristics ("diversified investment").
2. Investment target
Investment of the Employees' Pension Insurance Benefit Association Reserve Fund shall be managed appropriately by establishing a Benchmark
Portfolio, so as to secure investment returns targeted for managed funds provided in Article 79-6, Paragraph (1) of the EPI Act (the "managed
funds").
In doing so, attention shall be paid not to distort price formation in the market and private sector investment activities.
In addition, efforts shall be made to secure benchmark returns for each asset class in each fiscal year by appropriately selecting, managing andassessing entrusted investment management institutions, as well as securing benchmark returns for each asset class over the long term.

35

Employees' Pension Insurance Benefit Association Reserve Fund(National Federation of Mutual Aid Associations for Municipal Personnel)

Section 3 Reference Data

36

Employees' Pension Insurance Benefit Association Reserve Fund(National Federation of Mutual Aid Associations for Municipal Personnel)

Changes in the investment return, etc. (since the integration of employee pension plans)
1. Investment return

2. Value of investment income(Unit: JPY100M)(Unit: %)FY 2015(second half)

FY2016FY2017FY2018Investment income

473

2,150

3,429

879

1.94

Domestic bonds

984

-188

248

364

15.85

-5.24

Domestic equities

-330

1,331

1,836

-702

-5.23

3.47

2.64

Foreign bonds

-105

-320

247

204

-1.04

14.43

9.34

7.82

Foreign equities

-75

1,327

1,098

1,013

-0.03

0.00

0.00

0.00

Short-term assets

-1

0

0

0

FY 2015(second half)

FY2016FY2017FY2018

Modified total return

0.89

4.16

6.40

1.59

Domestic bonds

3.32

-0.79

1.25

Domestic equities

-3.98

14.76

Foreign bonds-2.32

Foreign equities
Short-term assets(Unit: JPY100M)(Unit: %)Realized return

FY 2015(second half)

FY2016FY2017FY2018

2.29

2.24

4.37

2.96

FY 2015(second half)

FY2016FY2017FY2018Realized income

1,111

1,066

2,112

1,436

(Income gain)

(349)

(820)

(1,170)(1,017)(Note 1) The investment return for fiscal year 2015 is the period rate for the second half of fiscal year 2015.
(Note 2) The investment income for fiscal year 2015 is the aggregate amount of investment income for the second half of fiscal year 2015.
(Note 3) Income gains comprise interest and dividend income.

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Employees' Pension Insurance Benefit Association Reserve Fund(National Federation of Mutual Aid Associations for Municipal Personnel)

Issues held
The tables below show the top 10 bond and equity issues held indirectly through entrusted investment and through in-house investment as ofthe end of March 2019, with bond issues classified by issuer name and equity issues by issue name. For information concerning bond andequity issues ranked 11th or lower, see the website of the Association.
The status of holding of issues does not represent the assessment of investees by the Federation.

○ Domestic bond (in order of total market value)No.

Names of issuer

Government of Japan
1
Japan Finance Organization for Municipalities
2
Japan Expressway Holding and Debt Repayment Agency
3
Joint LGB
4
Tokyo Metropolitan Government
5
Osaka Prefecture
6
Kanagawa Prefecture
7
Aichi Prefecture
8
Saitama Prefecture
9
10 Yokohama City
357 Issuers
Total○ Domestic equity (in order of total market value)

Total market
value(in 100M yen)

No.

6,213
795
639
619
544
455
345
337
312
275
17,097

1 Toyota Motor Corporation
2 SoftBank Group
3 Mitsubishi UFJ Financial Group
4 Takeda Pharmaceutical Company Limited
5 Keyence Corporation
6 Nippon Telegraph and Telephone Corporation
7 Sumitomo Mitsui Financial Group
8 Sony Corporation
9 Honda Motor Co., Ltd.
10 Mizuho Financial Group
2,171 Issues
Total

Names of issuer

1 UNITED STATES TREASURY
2 FRANCE (GOVERNMENT)3 ITALY, REPUBLIC OF (GOVERNMENT）
4 SPAIN, KINGDOM OF (GOVERNMENT)
5 UNITED KINGDOM OF (GOVERNMENT）
6 GERMANY (GOVERNMENT OF)
7 BELGIUM, KINGDOM OF (GOVERNMENT)
8 CANADA (GOVERNMENT)
9 AUSTRALIA (GOVERNMENT)
10 AUSTRIA, REPUBLIC OF (GOVERNMENT)
603 Issuers
Total

No. ofshares5,523,700
2,016,800
35,897,700
4,164,500
255,900
3,568,500
4,128,000
3,122,600
4,367,100
72,166,400

Total market
value(in 100M yen)

365
217
201
192
177
171
164
146
132
126
12,437○ Foreign equity (in order of total market value)○ Foreign bond (in order of total market value)
No.

Issue names

Total market
value(in 100M yen)

No.

3,334
981
636
606
516
472
204
166
142
138
9,399

Issue names

1 APPLE INC
2 MICROSOFT CORPORATION
3 AMAZON COM INC
4 FACEBOOK INC-A
5 ALPHABET INC-CL A
6 NESTLE SA （REGISTERED）
7 JOHNSON AND JOHNSON
8 ALPHABET INC-CL C
9 VISA INC-CLASS A SHRS
10 JPMORGAN CHASE & CO
2,743 Issues
Total

No. ofshares1,152,448
1,850,885
107,880
704,674
94,4481,088,365
701,218
80,984
591,922836,878

Total market
value(in 100M yen)

242
242
213
130
123
115
108
105
102
94
13,195(Note 1) The names of issuers and issues are provided by the Federation based on data registered in the T-STAR/GX system of Nomura Research Institute and BarraOne system of MSCI as of the end of
March 2019.
(Note 2) The total market value of bonds is an aggregated figure calculated for each issuer by the Federation based on data registered in T-STAR/GX system of Nomura Research Institute.
(Note 3) Issuers of bonds held in relation to active investment of hedged foreign bonds are classified as issuers of foreign bonds.
(Note 4) The names of issuers and issues may be different from those on the list of all issues held published separately on the website.

38