Ensuring stable profit over the medium to long term through globally diversified investments based on advanced risk management
We play a role as the ultimate manager of funds entrusted with JA Bank and JF Marine Bank. To fulfill this role, the Investment Business engages in efficient management taking advantage of economies of scale while continuing to ensure stable profit over the medium to long term and return it to our members as the ultimate objective.
Aiming to achieve this objective, given the era of low-interest rates that began some 20 years ago in Japan, the Investment Business has worked on “globally diversified investments” at an early stage in the global financial markets. We have built a global network using overseas sites including New York, London, Singapore, Hong Kong, Beijing and Sydney. We control the risks of our overall portfolio by conducting due diligence with ample information and diversifying our investments in assets with different risk-return characteristics rather than concentrating investments in limited asset classes.
In particular, we utilize hedging for the risk of exchange rates, which fluctuate considerably, as much as possible for investment in foreign currency denominated assets.
To pursue the utmost stability of profits for the medium and long-term, we constantly review our investment methods and risk management and will continue taking on the challenge of upgrading our globally diversified investments.
We introduced the “globally diversified investments” in fiscal 1998. To address the impact of low interest rates and intensified competition in investments and loans in Japan, we aimed to expand asset classes to enhance our asset management capability.
In fiscal 2001, we introduced the concept of asset allocation on a full scale and established an asset management structure to optimize our entire portfolio. Since fiscal 2008, the year when the finance crisis occurred, we made a fundamental review of our asset class selection method and strove to establish a sturdy portfolio with low volatility (changes in prices).
Afterward, we engaged in the expansion of asset class and the sophistication of investment methods and risk management as well as structural improvement. We entered project finance business (see page 45) and other investments.
From fiscal 2017, we have been strengthening our operational structure by sending our Board members to overseas business bases as resident officers. We also have newly established a local subsidiary in Australia to conduct mainly project finance businesses and a local subsidiary in the Netherlands to operate the Bank’s banking business in Europe.
Today’s globally diversified investments by Norinchukin
It has been approximately 20 years since the introduction of the concept of globally diversified investments and more than 10 years since the collapse of Lehman Brothers. During that time, our globally diversified investments have continued to evolve and deepen, which is reflected in our current portfolio.
The portfolio consists of roughly four kinds of asset classes—bonds, stocks, credit assets and alternative investments— each with different investment targets, which are described below.
In line with the expansion of asset class, the exploration for investment opportunities is also expanding. Our directors and staff in charge of Global Investments have visited as many as 66 countries/regions worldwide for investigation and the number of such locations is expected to increase going forward.
Approaching the Source of Profitability —The Norinchukin Bank’s Business in Europe
In the Investment Business, we are working on an approach to chase the source of profitability. For example, in fiscal 2017 the Bank established a local subsidiary in Australia, a lucrative place with many projects in the field of project finance, which provides financing for specific businesses/projects such as infrastructure improvement.
In fiscal 2019, the Bank launched a local subsidiary, Norinchukin Bank Europe N.V., in the Netherlands, where continuing growth is expected as a source of profitability both in financial and non-financial businesses in Europe, which is experiencing significant changes due to Brexit and other issues. The local subsidiary in the Netherlands will develop a wide range of businesses in tandem with the existing London Branch of the Bank.
Continuous Evolution and Deepening of Globally Diversified Investments
Pursuit of Profitability in an Environment Where Rapid Changes Could Occur
Our Investment Business has two major themes, one of which is how to diversify investments to stabilize overall profitability. Injecting substantial resources into overseas investments and expanding investments from traditional asset categories to new asset types, we have evolved our globally diversified investments in our own way. Regarding project finance, we newly established overseas subsidiaries, striving to ensure many investment opportunities. In the previous fiscal year, we strengthened our initiatives in real estate and private equity. In addition to purchasing existing financial products, we are focusing on accessing the source of profitability itself directly. Likewise, by diversifying our investment assets and deepening risk management, we will strive to fully address the market volatility caused by COVID-19.
The second theme is investments from the perspective of ESGs and SDGs. In addition to adopting the Equator Principles and endorsing the TCFD*, we aim to contribute to ensuring sustainability through financing— by investing in Sustainable Development Bonds, for example.
*Task Force on Climate-related Financial Disclosures, which was established by the Financial Stability Board (FSB).
What is The Norinchukin Bank?
- About The Norinchukin Bank
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