Fiscal Year 2020 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) ......................................................................................................................................... 3【Section 1 Administration and Investment of Funds in FY2020】
1 Market environment ........................................................................................................................................................... 5
2 Investment results(1) Asset mix ..................................................................................................................................................................... 6(2) Investment return......................................................................................................................................................... 7(3) Contribution analysis of excess return.......................................................................................................................... 8(4) Investment income .................................................................................................................................................... 10(5) Value of assets........................................................................................................................................................... 11(6) Fees........................................................................................................................................................................... 12
3 Benchmark portfolio ........................................................................................................................................................ 13
4 Risk management(1) Approach to risk management ................................................................................................................................... 14(2) Risk management efforts ........................................................................................................................................... 15(3) Status of risk management (overall assets) ............................................................................................................... 17
5 Investment in alternative assets ...................................................................................................................................... 18
6 Stewardship activities ..................................................................................................................................................... 22
7 Other major efforts .......................................................................................................................................................... 24【Section 2 Fund Investment System, etc. of the Federation】
1 Organizational structure ................................................................................................................................................... 26
2 Fund Management Committee ......................................................................................................................................... 29
3 Basic approach to investment ........................................................................................................................................ 31【Section 3 Reference Data】
1 Changes in the investment results ................................................................................................................................... 33
2 Issues held ....................................................................................................................................................................... 34
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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+23.55%Modified total return (market value basis)(FY2020)

Investment income+JPY 1,177.4 billion

Investment income (market value basis)(FY2020)

Value of investment assets:

JPY 6,220.1 billion

Total market value(End of FY2020)

As pension funds are intended for long-term investment, the investment status must be judged from the long-term 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 FY2020

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

1 Market environment

Change in benchmark return
The benchmark return of the total assets for the year was +24.83%, mainly driven by the sharp rise in domestic andforeign stocks from the development of the COVID-19 vaccines and from expectations of economic recovery due tolarge additional economic measures in the United States.

(Note) The level as of March 31, 2020 is the base figure of 100.
Asset class

BenchmarkReturns
Q1

Q2

Q3

Q4

Full fiscal year

Domestic bonds NOMURA-BPI Overall-0.49％

0.17％-0.00％-0.38％-0.70％

Domestic equities TOPIX (with dividends)

11.25％

5.17％

11.19％

9.25％

42.13％

2.60％

0.81％

0.67％

1.27％

5.43％

19.94％

5.97％

12.27％

12.27％

60.21％

8.17％

3.13％

6.04％

5.53％

24.83％

Foreign bonds
Foreign equities

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

MSCI ACWI ex. JAPAN(yen-based, with dividends)
Total(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)

2 Investment results(1) Asset mix
The composition by asset is as follows:(Unit: %)FY2020End of FY2019
End of Q1
Domestic bonds

42.4

33.7

End of Q2

32.8

End of Q3

End of Q4(End of FY)

25.8

Benchmarkportfolio

25.8
25.0

Short-term assets

(8.4)

(1.8)

(5.4)

(1.9)

(7.3)

Domestic equities

21.7

24.5

24.2

26.3

25.9

25.0

Foreign bonds

15.4

17.0

18.4

20.8

21.6

25.0

Foreign equities

20.5

24.9

24.7

27.1

26.7

25.0

Total

100.0

100.0

100.0

100.0

100.0

100.0

(Note 1) Deviation tolerances from the benchmark portfolio are ±20% for domestic bonds, ±12% for domestic equities, ±9% for foreign bonds and ±11% for foreign equities.
(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 funds is 0.9% (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)

2 Investment results(2) Investment return
Changes in modified total return

The modified total return for FY2020 was 23.55% for the overall assets.
(Unit: %)FY2020
Q1

Q2

Q3

Q4

FY total

Modified total return

7.40

2.92

5.90

5.70

23.55

Domestic bonds

-0.19

0.28

0.16

-0.41

-0.13

Short-term assets(0.00)(0.00)(0.00)(0.00)(0.00)

Domestic equities

11.83

5.31

10.91

9.01

41.97

Foreign bonds

2.97

0.73

0.89

1.67

6.17

Foreign equities

20.02

6.00

12.03

12.07

59.17
(Unit: %)FY2020Realized return

Q1

Q2

Q3

0.30

0.89

0.81

Q4

1.60

FY total

3.62(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.

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Modified total return by asset(aggregate for the fiscal year)Employees' Pension Insurance Benefit Association Reserve Fund(National Federation of Mutual Aid Associations for Municipal Personnel)

2 Investment results(3) Contribution analysis of excess return ①
The modified total return for overall investment assets was -23.55%, while the excess return compared with the benchmark return was -1.28%.
As for the asset allocation factor, overweight of domestic bonds and underweight of domestic and foreign equities made negative contributions.
As for the individual asset factor, foreign and domestic bonds made positive contributions.
FY2020 (April 2020 through March 2021)
Overall
Domestic
assetsbonds
Modified total return
Benchmark return
Excess return*(Unit: %)Domestic
equities

Foreignbonds

Foreignequities

23.55

-0.13

41.97

6.17

59.17

24.83

-0.70

42.13

5.43

60.21

-1.28

0.57

-0.17

0.74

-1.04

* The benchmark return for overall assets is calculated by weight-averaging the benchmark
portfolio. Due to rounding, the total sum of individual figures may not necessarily add up to
the total.

Domesticbonds
Domestic
equities
Foreignbonds
Foreignequities
Total

Asset allocation
factor①

Individual asset
factor②①+②-2.39%

0.52%-1.87%-0.14%

0.18%

0.04%

1.21%

0.35%

1.56%

-0.97%-0.03%-1.01%-2.30%

1.02%-1.28%① Asset allocation factor: A factor that is attributable to the difference between theasset mix of the fund and the benchmark portfolio.
② Individual asset factor: A factor that is attributable to the difference between themodified total return and benchmark returns concerning each asset class.

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

2 Investment results(3) Contribution analysis of excess return ②○ Domestic bonds
The modified total return of foreign equities was -0.13%, which exceeds the benchmark return (-0.70%) by 0.57%.
Regarding passive funds, as investments were made in a way that allowed an overweighting in local bonds, the return
exceeded the benchmark with the positive contribution of bond type factors due to the shrinkage of the spread between
local bonds and government bonds. As for active funds, bond selection related to industrial bonds was successful andcurrency-hedged foreign bond funds, classified as domestic bonds, made positive contributions, resulting in a higher returnthan the benchmark for all domestic bonds.
○ Domestic equities
The modified total return of foreign bonds was 41.97%, which was below the benchmark return (42.13%) by 0.17%.
The passive funds were almost the same as the benchmark. As for the active funds, there are differences in performance
depending on the fund strategies. Many funds with a growth strategy and medium- to small-sized stock funds were strong.
The manager benchmark of funds with low volatility strategy among smart beta funds was well below the rate of return of
TOPIX while the market rose significantly. These made all domestic equities below the benchmark.
○ Foreign bonds
The modified total return of domestic bonds was 6.17%, which exceeds the benchmark return (5.43%) by 0.74%.
The passive funds were below the benchmark due to factors such as the timing of adding funds to the funds. The active
funds generally performed well. The returns of five out of eight companies that uses the Bloomberg Barclays Global
Aggregate Index (8.54%) as a manager benchmark (8.54%) greatly exceeded the benchmark return rate, meaning that thebrand selection for all five companies was successful. As a result, all foreign bonds exceeded the benchmark.
○ Foreign equities
The modified total return of foreign equities was 59.17%, which was below the benchmark return (60.21%) by 1.04%.
The passive funds was below the benchmark due to the negative impact of the factors such as taxation on dividends. As
for the active funds, there are differences in performance depending on the fund strategies. The funds that manage
portfolios with reduced volatility struggled as the markets rise significantly. All foreign equities was below the benchmark.

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

2 Investment results(4) Investment income
The investment income for FY2020 was JPY 1,177.4 billion for overall assets.

Changes in investment income(Unit: JPY100M)

FY2020
Q1

Q2

Q3

Q4

FY total

Investment income

3,663

1,567

3,224

3,320

11,774

Domestic bonds

-38

53

27

-65

-23

Short-term assets

(0)

(0)

(0)

(0)

(0)

Domestic equities

1,323

672

1,464

1,342

4,801

Foreign bonds

239

68

94

205

606

Foreign equities

2,139

774

1,639

1,839

6,391

(Unit: JPY100M)

FY2020
Q1
Realized income

142

Q2

429

Q3

386

FY total

Q4

777

1,734

(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) Due to rounding, the total sum of individual figures may not necessarily add up to FY total.

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Total investment income by asset(aggregate for the fiscal year)Employees' Pension Insurance Benefit Association Reserve Fund(National Federation of Mutual Aid Associations for Municipal Personnel)

2 Investment results(5) Value of assets
The book value, total market value and valuation gains/losses by asset is as follows.
(Unit: JPY100M)
FY2020End of FY2019
End of Q1
Book
value

Total
marketvalue

Valuation
gains/
lossesTotalmarket
value

Book
value

End of Q2
Valuation
gains/
losses

Book
value

Total
marketvalue

End of Q3
Valuation
gains/
losses

Book
value

Total
marketvalue

End of Q4 (End of FY)
Valuation
gains/
losses

Book
value

Total
marketvalue

Valuation
gains/
lossesDomestic bonds

21,652 22,149

497 16,975 17,394

419 17,694 18,056

363 14,143 14,475

332 15,791 16,032

241

Short-term
assets(4,399) (4,399)

(0)

(937)

(0) (2,998) (2,998)(0) (1,058) (1,058)(0) (4,561) (4,561)(0)Domestic equities

11,176 11,310

134 11,181 12,633

1,452 11,240 13,305

2,065 11,500 14,769

3,269 11,901 16,111

4,210

Foreign bonds

7,949

8,063

114

388 11,185 11,634

449 12,895 13,435

540

Foreign equities

9,370 10,702

1,332

Total

50,147 52,225

2,078 45,902 51,620

(937)

8,384

8,752

368

9,721 10,109

9,363 12,841

3,478

9,493 13,615

5,718 48,147 55,086

4,122

9,545 15,185

6,939 46,372 56,062

5,640

9,496 16,623

7,127

9,690 50,083 62,201

12,118(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 amounts of funds allocated and withdrawn in FY2020 by asset class are as follows.
(Unit: JPY100M)

Domesticbonds
Amount of funds
allocated andwithdrawn-6,256

Domestic
equities

Foreign bonds
0

4,766

Foreignequities-470(Note) The above figures are the total sums of asset cancellations (cash-out) for the purpose of securing funds for pension benefits and fund transfer for each asset classrelated to asset cancellation and reinvestment for the purpose of asset portfolio mix adjustment (rebalancing).

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

2 Investment results(6) Fees
The amount of fees totaled about JPY3.7 billion in FY2020.
The fee rate relative to the value of investment assets came to 0.07%.
(Unit: JPY100M, %)FY2020Fees

Fee rate

Domestic bonds

8

0.05

Domestic
equities

10

0.08

Foreign bonds

5

0.06

Foreign equities

12

0.09

Alternative
assets20.42Overall assets

37

0.07

(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 balance(Note 4) In the above table, the figures for alternative assets are separately indicated.

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

3 Benchmark portfolio

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

Domestic equities

Foreign bonds

Foreign equities

Asset mix

25%

25%

25%

25%

Deviation tolerance

±20%

±12%

±9%

±11%

2. Verification of the benchmark portfolio○ Verification mechanism
In accordance with the basic policy on the administration and investment of the Employees' Pension Insurance Benefit Association Reserve
Fund, regular verifications shall be performed for the Federation’s benchmark portfolio. The results of the verification carried out in FY2020 are
as follows.
○ Verification method
After calculating the expected return of each asset and the risk/correlation coefficient based on the recent market environment, a Monte Carlosimulation (Note) was carried out, and we confirmed that there was no problem with the quantitative standard used when reviewing thebenchmark portfolio (March FY2020).
① Securing the expected reserve fund
• Will the average reserve ratio (percentage of average assets calculated by simulation for reserve fund necessary for financial
recalculation) be 100% or more?
• Will an expected investment yield (nominal wage increase rate +1.7%) of 4.1% be achieved?
② Downside risk
• Is the probability of underfunding less than that in the case of domestic bonds 100%?
• Is the downward probability (probability that the annual return will be less than the nominal wage increase rate) less than the probability inthe case where domestic bonds are 100%?
• Is there a big difference between the conditional average deficiency rate (average deficiency rate when the annual return is less than thenominal wage increase rate) and the rate when the benchmark portfolio was reviewed?
○ Verification results
As a result of the above verification, it is expected that the reserve ratio can be maintained at 100% or more and the portfolio meets the
expected investment yield. Also, because the downward probability and conditional average deficiency rate have no particular issues, overall,
we judged that there is no need to change the current benchmark portfolio and decided to continue our current benchmark portfolio.
(Note) The Monte Carlo simulation is a method for conducting analysis from the statistical values ​of data distribution obtained by systematically generating
thousands to tens of thousands or more pseudo-random sequences and substituting each sequence into the formula.

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

4 Risk management(1) Approach to risk management○ Generally speaking, "risk" refers to danger or possibility of negative impact. In the field of asset investment. In the field ofasset investment, risk means uncertainty of returns, etc. associated with market volatility or other factors. (”Uncertainty of
returns” includes upside risks as well as downside risks of asset values.)○ 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 Federation appropriately implements risk management concerning investment in accordance with the implementation
policy for risk management concerning investment of the funds in consideration of the points including the following: thatinvestment of funds should be made safely and efficiently from a long-term perspective; and that diversified investments
should be maintained in principle.
Implementation policy for risk management concerning investment of the fund (extract)
1. Basic approach concerning risk management
The National Federation of Mutual Aid Associations for Municipal Personnel appropriately conducts risk management related to theinvestment of funds in light of the following matters.
(1) Investment of funds should be made safely and efficiently from a long-term perspective.
(2) A benchmark portfolio should be developed and investment of funds should be made based on the benchmark portfolio throughappropriate diversification across multiple asset classes with different risk/return profiles and other characteristics (hereinafter referred toas "diversified investment") in principle.
3. Method of risk management(2) Matters unique to each reserve fund
① Employees' Pension Insurance Benefit Association Reserve Fund
A. For the basic portfolio, the Federation shall identify the probability of falling below the nominal wage growth rate (hereinafter referred toas “Lower Partial Probability”) and the average shortfall rate when falling below the nominal wage growth rate (hereinafter referred to as
the “Conditional Average Shortage Rate”) at least once a year and manage them appropriately.

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

4 Risk management(2) Risk management efforts ①○ Management of the deviation of the asset mix• Investment based on the benchmark portfolio requires the management of various risk factors. Therefore, in order tosecure returns in line with the benchmark portfolio from the long-term perspective, it is important, in particular, to manage
the degree of 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 statusof the deviation of the asset mix of the fund from that of the benchmark portfolio and manages the actual portfolio so as tokeep the degree of deviation within a certain range (deviation tolerance). In this way, the Federation checks whether or notthere are problems 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 ofshare price 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
to each 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 of management (status of risk management and asset administration) of the institutions to which it entrusts asset
management or asset administration (entrusted investment management institutions and asset administration institutions),from the viewpoint of ensuring the smooth operation.

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

4 Risk management(2) Risk management efforts ②○ 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 theFund Management Committee.

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

4 Risk management(3) Status of risk management (overall assets)○ Asset mix and estimated tracking error
The asset mix of domestic equities and foreign equities changed near the center value. On the other hand, the asset mix ofdomestic bonds and foreign bonds approached the median at the end of the period through the transfers between the bonds
with the review of the benchmark portfolio. The estimated tracking errors of overall assets fluctuated due to the impact oftransfers of domestic and foreign bonds between assets with the review of the benchmark portfolio and factors of market
fluctuations.
【Changes in the asset mix】

【Changes in the estimated tracking error】

Estimated tracking error:
A benchmark used to estimate the degreeof deviation (standard deviation) of the
future excess return (the difference between
the return for the portfolio and thebenchmark return)17

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

5 Investment in alternative assets

Investment in alternative assets ①
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 thelong-term perspective. The status of investment is as shown in the next page.

Investment policy pertaining to diversification of eligible investment instruments (investment in alternative assets) (Excerpt)1.

Definition of diversification of eligible investment instruments① 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 (hereinafter referred to as “alternative assets”).
② 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 bythose assets.

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 portfolio① 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 othercharacteristics.
② 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.
① In principle, investment shall be diversified between traditional assets, such as equities and bonds, and alternative assets and across different types of alternative
assets.
② Diversification shall made after the effects of diversified investment have been recognized and sufficient evidence to support the expectation that an excess returns
can be obtained has been obtained.
③ 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 theearning capacity of each asset and the development of the secondary market.
④ 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).
⑤ The Federation shall use the expert knowledge of the Fund Management Committee.

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

5 Investment in alternative assets

Investment in alternative assets ②(1) Invitation of public applications for entrusted investment management institutions through Asset Manager Registration
SystemThe Federation started accepting entries with respect to products investing in real estate from fiscal year 2017 andproducts investing in infrastructure and private equity from fiscal year 2018.
(Reference)
Asset class

Main investment
targets

Main income source and characteristics

Real estate

Real estate

Stable rent income earned from invested real estates

Infrastructure

Infrastructure operatingcompanies

Stable business income earned from investee companies and projects

Private equity

Unlisted stocks

Rise in corporate value due to medium- to long-term investments incompanies with high growth potential(2) Adoption of entrusted investment management institutions
In FY2020, the Federation adopted entrusted investment management institutions for two funds related to investment inprivate equity.
 J.P. Morgan Asset Management (Foreign Private Equity)(Fund of funds manager:J.P. Morgan Investment Management Inc.) Nomura Asset Management Co., Ltd. (Foreign private equity)(Fund of funds manager:HarbourVest Partners, LLC)

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

5 Investment in alternative assets

Investment in alternative assets ③(3)Status of investments○ Domestic real estate investments (counted as domestic bonds)

Entrusted investment management institutions

Nomura Asset Management Co., Ltd.

Outline of investment funds
Diversified investment in sectors such as offices, rental houses,
and industrial and commercial facilities mainly in the three major
metropolitan areas

Total market
Timevalue
Starting date of weighted(End of theinvestment
Returns
fiscal year)(Fiscal year)¥3.1 billion December 20187.17%

○ Foreign real estate investments (counted as foreign bonds)

Entrusted investment management institutions

Outline of investment funds

Total market
Timevalue
Starting date of weighted(End of theinvestment
Returns
fiscal year)(Fiscal year)

Tokio Marine Asset Management

Diversified investments in real estate funds (mainly in the office,commercial facility, industrial facility, and rental house sectors) inglobal developed countries excluding Japan¥31.9 billion December 201815.13%PGIM Japan

Diversified investments in such sectors as offices, commercial¥15.9 billion December 2018
facilities, industrial facilities and rental houses in major U.S. cities

3.46%

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

5 Investment in alternative assets

Investment in alternative assets ④○ Foreign infrastructure investment(recorded in foreign bonds)

Entrusted investment management institutions

Outline of investment funds

Total market
Timevalue
Starting date of weighted(End of theinvestment
Returns
fiscal year)(Fiscal year)

J.P. Morgan Asset Management

Diversified investment in infrastructure assets centered on stably
operating assets at global level¥5.3 billion February 2020

6.69%

Tokio Marine Asset Management(Fund of funds manager:
BlackRock Financial Management, Inc.)

Diversified investment in infrastructure funds centered on stably
operating assets at global level¥1.8 billion

0.67%

March 2020

○ Foreign private equity investment (recorded in foreign equities)
Total market
Timevalue
Starting date of weighted(End of theinvestment
Returns
fiscal year)(Fiscal year)

Entrusted investment management institutions

Outline of investment funds

J.P. Morgan Asset Management(Fund of funds manager:
J.P. Morgan Investment Management Inc.)

Diversified investment in PE funds centered on buy-outs at global
level¥0 billion

March 2021

1.61%

Nomura Asset Management Co., Ltd.
(Fund of funds manager:
HarbourVest Partners, LLC)

Diversified investment in PE funds centered on buy-outs at global
level¥0 billion

March 2021

0.00%

(Note 1) Foreign investment funds were affected by changes in market price valuation due to foreign exchange fluctuations.
(Note 2) The above table covers only items for which entrusted investment management institutions consented to disclosure.
(Note 3) The investment start date is the date of signing the discretionary investment contract.

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

6 Stewardship activities(1) Efforts in FY2020○ As a part of its stewardship activities for FY2020, the Federation confirmed the situation of efforts made by entrusted investment management
institutions through the surveys and hearings for them in relation to the situations of shareholders' voting right exercises and engagement activities.
Furthermore, by asking additional questions to clarify the differences among the institutions, we encouraged them to carry out efficient stewardship
activities in line with their operational style and team arrangement. In addition, the Federation made periodical reports on its stewardship activities.
○ Based on the re-revision of Japan's Stewardship Code by the Financial Services Agency in March 2020, in September of the same year, theacceptance statement of the code was revised.

Surveys and hearings of entrusted investment management institutions
Subjects

PeriodSurvey on exercise of voting rights

August 2020

Survey on performance of
stewardship activities

September 2020

Additional survey on the above two
items

November 2020

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

12 entrusted investment management
institutions for domestic equities

Main subjects••

results of exercise of voting rights
structure for exercise of voting rights

•
•
•
•

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(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, Capital International 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 DS 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

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

Targets

Main subjects

As necessary

Executives of the Federation
Executives and employees of member
associations

Federation's approach to stewardship activities and ESG
investment

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

February 2021

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

Executives and employees of member associations

FY2020 stewardship
activity report

March 2021

Publicized on the Federation's website

•
•

22

Results of monitoring of stewardship activities conducted by
entrusted investment management institutions
Status of exercise of voting rights of shareholders

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

6 Stewardship activities(2) Main activities and future initiatives①Periodical report○ Annual Stewardship Activity Report FY2020○ Federation’s Newsletter (February issue)

https://ssl.shichousonren.or.jp/fund/stewardship_active.html②Future initiatives○ Gathering wide range of information
The Federation will continue gathering information by such way as meetingwith other institutional investors, participating in online seminars by outside
experts and information exchange with entrusted investment management
institutions. In the future, we will collect information widely regarding thesummary of issues in product evaluation and method of reflecting on
investment and measuring effect, and enhance our knowledge in this field.
Also, We will continue to look out for the response of entrusted investment
management institutions during the COVID-19 pandemic.

○ Discussion of methods for evaluating entrusted investment
management institutions according to their characteristics
The Federation will continue discussing the methods for monitoring
entrusted investment management institutions’ effective stewardship
activities and the appropriate methods for evaluation.
○ Strengthening of information feedback
The Federation will publicize information through its website and othermeans and exercise its efforts to deepen the understanding by its
members (beneficiaries) as to its stewardship activity by such means
as PR papers and periodical reports at its general meetings.

○ Revision of regulations
We will consider reviewing the “Federation Corporate GovernancePrinciples” as needed based on the revision of the “Corporate GovernanceCode”.

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

7 Other major efforts(1) Administration and evaluation of entrusted investment management institutions, etc. (traditional assets)① Administration and evaluation of entrusted investment management institutions
The Federation requires entrusted investment management institutions to submit monthly reports on investment results and the risk
status and checks the status of compliance with the investment guidelines. The Federation also requires quarterly reports on theportfolio status, a factor breakdown of the excess return, and changes in the organizational structure and investment management
system and conducts administration through measures such as receiving explanations about summary investment results and future
investment policy, among other matters, as necessary at meetings.
The evaluation is conducted with the end of each fiscal year as the reference date based comprehensively on qualitative evaluation(e.g., investment management systems and processes, risk management, and compliance) and quantitative evaluation (the excess
return and tracking error in the case of passive investment and the excess return and the information ratio, among other items, in thecase of active investment). Quantitative evaluation is conducted based on actual results in the past three years and in the past five
years, with the possible effects of the market environment and investment style taken into consideration.
☞ One fund was partially cancelled (reduction) in the comprehensive evaluation whose base date is at the end of FY2019.
② Administration and evaluation of asset administration institutions
The Federation requires monthly reports on the asset administration status in order to check the status of compliance with the asset
administration guidelines and conducts administration through measures such as receiving explanations at meetings as necessary.
Qualitative evaluation is conducted with respect to such items as the business operation system and asset administration system.

March

December

September

June

March

【Performance check】◇ Monthly

＊

＊

＊

＊

＊

＊

＊

＊

＊

＊

＊

＊

☆

・・・

【Report on the investment status】◇Quarterly

☆

☆

☆

【Comprehensive evaluation】◇Annual

☆

24

・・・

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

Section 2 Businesses and Fund Investment of the Federation

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

1 Organizational structure

Organizational structure ①
1. Organization
As of April 1, 2021, it is required that 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 122.
The organization consists of the General Affairs Department (General Affairs Division, Planning Division, Insurance Division andWelfare Division), the Finance Department (Accounting Division, Investment Planning Division, In-house Investment Division, FundManagement Division and Alternative 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.
2. General Assembly
The General Assembly consists of 61 members, 47 of which are elected by mutual vote the Presidents of associations which are themembers of the Federation (hereinafter the "Member Associations"). Among the members of the General Assembly, 14 are elected bymutual 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 andaccount settlement, disposal of important assets and assumption of significant debt are subject to resolution of the General Assembly.
3. 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, finance and 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").
4. Long-term Benefit Fund Committee
This is a committee also participated in by the representatives of Member Associations, which conducts research and study relating tobasic policies for investment of Funds and other important matters.
5. Operational Management Committee
This is a committee also participated in by the representatives of Member Associations, which conducts research and monitoring ofbusiness administration and fund management implemented by the Federation and the Member Associations, as well as assessment ofbusiness.

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

1 Organizational structure

Organizational structure ②
6. Fund Investment Review Council
This is a council for ensuring the safe and effective investment of surplus from business operation of each of theaccountings of the Federation, discussing decision-makings as to the investment of funds. This council is constituted by afull-time managing director (hereinafter a “Senior Managing Director”), the Secretary-General, the General Manager ofFinance 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
Alternative Fund Management Division, the Manager of Investment Risk Management Office, and other members as may bedeemed necessary. In principle, the council regularly meets once a month, and from time to time depending on the necessity.
7. 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 SecretaryGeneral, the General Manager of Finance Department and other members as may be deemed necessary. In principle, thecouncil regularly meets once a month, and from time to time as depending on the necessity.

27

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

1 Organizational structure

Organizational structure (3)③As of April 1, 2021

8. Organizational structure of Federation
Report of status of investment,risk management, etc.

Fund Management
Committee(Discussion by financial experts)
Basic policy, benchmark portfolio,risk management, investment
methods, etc.

GeneralAssembly

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

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

Use of expert
knowledge

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

Audit Office

Investment Risk
Management Office

General Manager ofFinance Department
Chief Investment Specialist

Risk management

Senior Investment Specialist

Investment Planning
Division

In-house Investment
Division

Fund Management
Division

Alternative FundManagement Division

Basic policy, funding plan,benchmark portfolio

In-house investment

Entrusted investment management

Alternative investment

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

2 Fund Management Committee

Fund Management Committee ①○ Fund Management Committee
A Fund Management Committee is established within the Federation. The Committee shall comprise of members who possess
academic knowledge or practical experience in areas such as the pension system, economics, finance and fund management. Members
are appointed by the President.
As an advisory body for the President, the Fund Management Committee has a duty to conduct research on basic issues relating to fundmanagement, discuss matters necessary for the achievement of the purpose to contribute to the safe and efficient fund management,
and to report the findings to the President. The Committee is also to give advice to the President for any other important matters relating
to the fund management.
For expert matters relating to the management and investment of Funds, including the adoption and amendment of basic policies for the
management and investment of Funds including benchmark portfolio, deliberation at the Fund Management Committee is required.
List of Fund Management Committee Members (As of April 2021)

Chairperson

Ohno Sanae

Professor, Faculty of Economics, Musashi University

Kato Yasuyuki

Professor, Graduate School of Business Administration, Kyoto University of Advanced Science
Specially Appointed Professor, Graduate School of Management, Tokyo Metropolitan University
Adjunct Professor, Graduate School of Management, Kyoto University

Takehara Hitoshi

Professor, Waseda Business School (Graduate School of Business and Finance)

Tokushima Katsuyuki
Toshino Masashi
Miwa Yumiko

Chief fixed income analyst(Director), Financial Research Department, NLI Research Institute
Professor, Faculty of Business Administration , Seikei University
Professor, Faculty of Commerce, Meiji University(Note) In Japanese alphabetical order, honorifics omitted.

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

2 Fund Management Committee

Fund Management Committee ②○ Meetings of the Fund Management Committee (FY2020)
Meeting
number

46th

47th

48th

Meeting date

September 28, 2020
(Web conference)

February 8, 2021
(Web conference)

March 29, 2021

Main subjects
•
•
•
•
•
•

Consultation paper
Subjects to be discussed this year and how to proceed with themExamination of the benchmark portfolio for the Annuity Retirement Benefit
Association Reserve Fund
Recommendation paper (draft)
Acceptance statement of Japan’s Stewardship CodeStatus of investment of pension funds•••

Concept of safe and efficient investment of pension funds
Status of stewardship activities
Status of investment of pension funds•

Examination of the benchmark portfolio for the Welfare Pension Insurance
Benefit Association Reserve Fund
Examination of the benchmark portfolio for the Transitional Long-term
Benefit Association Reserve Fund
Recommendation paper (draft)
Status of investment of pension funds in FY2021•(Web conference)

•
•

30

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

3 Basic approach to investment

Basic approach to investment○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 and efficient 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 Employees' Pension Insurance Act, a benchmark portfolio shall be set and appropriately managed, and efforts shall be made to earn
the benchmark return for overall assets and each asset class, as well as generating benchmark returns for overall assets and 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 collected from insured
persons of the EPI and valuable resources for funding future pension benefits, the funds shall be managed with the objective of contributing to the stable operationof EPI schemes in the future by investing it safely and efficiently "solely for" ("for" in the case of investing in line with 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 established from the longterm perspective (the "benchmark portfolio") based on appropriately diversifying investments in multiple assets that differ in risk/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 overall assets and each asset class in each fiscal year by appropriately selecting, managing
and assessing entrusted investment management institutions, as well as securing benchmark returns for overall assets and each asset class over the long term.

31

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

Section 3 Reference Data

32

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

1 Changes in the investment results

Changes in the investment return, etc. (since the integration of employee pension plans)①Investment return②Value of investment income(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.
(Note 4) Short-term assets in FY2020 are short-term bonds included in domestic bonds.

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

2 Issues held

Issues held ①
The tables below show the top 10 bond and equity issues held indirectly through entrusted investment and directly through inhouse investment as of the end of March 2021, with bond issues classified by issuer name and equity issues by issue name.
For information concerning bond and equity issues ranked 11th or lower, see the website of the Federation.
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○ Domestic equity (in order of total market value)
Total market
value(in 100M yen)
4316

No.

Issue names

No. of shares

Total market value(in 100M yen)

1

Government of Japan1

Toyota Motor Corporation

5,370,600

468

2Japan Finance Organization for Municipalities

381

2Sony Corporation

3,186,800

370

3Japan Expressway Holding and Debt Repayment Agency

348

3

SoftBank Group

3,740,200

350

4Tokyo Metropolitan Government

281

4Keyence Corporation

533,300

269

5

Joint LGB

239

5

Mitsubishi UFJ Financial Group

37,057,500

224

6Kanagawa Prefecture220

6Shin-Etsu Chemical

1,062,000

199

7Japan Housing Finance Agency (former Government Housing Loan Corporation)219

7

Sumitomo Mitsui Financial Group

4,609,600

189

8

Saitama Prefecture

182

8

Recruit Holdings

3,409,400

184

9Osaka Prefecture177

9

Nippon Telegraph and Telephone Corporation

6,301,000

183

10Aichi Prefecture

157

10

Nintendo Co., Ltd.

10,253

Total

Total

305 Issuers○ Foreign bond (in order of total market value)No.

Names of issuer

277,800175

2,214 Issues

15,999○ Foreign equity (in order of total market value)
Total market
value(in 100M yen)
5,524

No.

Issue names

No. of shares

Total market value(in 100M yen)

1

UNITED STATES TREASURY

1

APPLE INC

3,801,485

513

2

ITALY, REPUBLIC OF (GOVERNMENT)

1,304

2

MICROSOFT CORPORATION

1,657,894

432

3

FRANCE (GOVERNMENT)

1,240

3

AMAZON COM INC

100,762345

4

GERMANY (GOVERNMENT OF)

871

4

FACEBOOK INC-A

614,030200

5SPAIN, KINGDOM OF (GOVERNMENT)

830

5

ALPHABET INC-CL A

82,263

187

6

UNITED KINGDOM OF GREAT BRITAIN AND NORTHERN IRELAND

787

6

ALPHABET INC-CL C

75,236

172

7

AUSTRALIA, COMMONWEALTH OF (GOVERNMENT)309

7

TAIWAN SEMICONDUCTOR

6,038,808

138

8

BELGIUM, KINGDOM OF (GOVERNMENT)

279

8

JPMORGAN CHASE & CO

797,247

134

9

CANADA (GOVERNMENT)

277

9

VISA INC-CLASS A SHR

528,470124

10NETHERLANDS, KINGDOM OF (GOVERNMENT)

213

10

Total

712 Issuers

14,053

ALIBABA GROUP HOLDING
2,995 Issues
Total

34

493,248

124
16,505

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

2 Issues held

Issues held ②○ Alternative investment (classified by asset class and arranged in the descending order of total market value)(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 the BarraOne
system of MSCI as of the end of March 2021.
(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 ResearchInstitute.
(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.
(Note 5) The above table covers only items for which entrusted investment management institutions consented to disclosure.

35