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Key Considerations to Implement EMP for Global Financial City Tokyo

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Key Considerations to Implement EMP for Global Financial City Tokyo Material 5 Key considerations to implement EMP for Global Financial City Tokyo Keiichi Aritomo The Consortium for Japan International Asset Management Center Promotion (JIAM) 12 September 2017 Advisory Panel for Global Financial City Tokyo (Seventh Meeting) 19 Background and issues to be addressed ▪ Emerging Asset Manager Program (EMP) was proposed as one of the measures in the TMG’s Interim Report on Policy for 1 “Global Financial City Tokyo” announced in June 2017. ▪ What are the ▪ EMP (encompassing TMP)* has been adopted in the U.S. and objectives of the other markets largely by local government-led pension funds. Tokyo-version EMP? ▪ Such pension funds with EMP have robust investment 2▪ How should EM be （ management infrastructure with an internal CIO Chief defined for the Tokyo- ） Investment Officer and portfolio managers. version EMP? ▪ It would be a challenge for the TMG to function an asset owner and build a solid investment management infrastructure ▪ What scheme is overnight. Many issues to overcome exist as there are very 3 necessary for EMP to few EMP case examples in Japan. be established? ▪ “EMERGENCE” by Paris Europlace is an EMP led by a city but ▪ What are TMG’s roles there are not many examples that can be referened. in the Tokyo-version 4 EMP? *Emerging Manager Program / Transition Manager Program: program(s) to support the development of asset managers by discovering and providing funds to those aspiring to become asset managers 20 Comparison of EMP schemes by market Singapore France USA CalPERS, Emergence Temasek CalSTRS, etc. （Funds comprised of 15 （sovereign fund） （Pension fund for local Program institutional investors） Organizer government employees） Grosvenor, Protégé Dymon Asia New Alpha Partners, Progress IM, etc. platform / Seeding Gatekeeper Investment Investment Employment mandate mandate Manager Emerging Hands- Hands on -off Involvement Government Government 21 “EMERGENCE” - one of four pillars of Paris EUROPLACE • Paris Europlace is an organization to develop and promote the Paris Financial Center. • It comprises 4 divisions aiming to develop a competitive and attractive market. • EMERGENCE is also called an “Investors Network,” representing one of the four divisions of Paris EUROPLACE. • Its mission is to provide access to the most promising/ talented independent emerging asset managers to investors. Source: Paris EUROPLACE 22 Scheme of EMERGENCE Institutional • 15 Institutional Investors Investors • Primarily composed of CIOs of the 15 institutional investors • Approves asset allocation of seed money • Selects Seeding Platform Board of Directors • Control and monitor conflict of interest • Chairman: Concurrently holding position of Honorary Chairman of Association Française de la Gestion Financière’s Chairman (i.e., France’s investment management association) Gatekeeper/ Seeding • NewAlpha selected from several candidates Platform • NewAlpha is a manager of hedge fund managers specializing in EMP. • Lock-up period: 3 years SICAV* Funds • Fund auditor: PwC • 10 Emerging Managers** were initially selected. EM EM EM EM • Transition Manager Program (TMP) yet to be launched. *société d'investissement à capital variable, an open-ended collective investment scheme **12 companies as of June 30, 2017 23 Overview of EMERGENCE Established 19 January 2012 Total allocations of Seed Money 450M Euros Seed Money providers Primarily 15 French institutional investors • ACMN (Insurance) • AG2R La Mondiale (Insurance) • Aviva (Insurance) • BNP Paribas Cardif (Insurance) • CAVP (Pension Fund) • Caisse de Dépots (Public Financial Institution) • CMNE (Crédit Mutuel Nord Europe) • CNP Assurances (Insurance) • EDF (Electric utility company) • Macif (Insurance) • Malakoff Mederic (Insurance) • Matmut (Insurance) • Neuflize Vie (Wealth management) • Prépar (Insurance) • UMR (Pension Fund) Seed Money allocations • Absolute Return: 250M Euros • Long Equity Return: 200M Euros Performance as of June 30, 2017 • EMERGENCE’s Total IRR = 9.39% • AuM size doubled • Of the 12 managers, 9 show steady growth Source: NewAlpha and Paris EUROPLACE 24 Performance of EMERGENCE Absolute Return Long Equity Return （Unit：％） （Unit：％） AM Expertise/ YTD* ITD** AM Expertise/ YTD* ITD** Style/ Asset Style/ Asset Classes Classes Eiffel Investment L/ S Credit -1.30 +14.17 Focus AM European +7.91 +27.73 Group Equities KeyQuant Managed -2.80 +0.65 Financière European +13.68 +43.19 Futures Arbevel Equities Eiffel eCapital Crowd +2.45 +4.20 Talencce European +12.19 +27.01 Funding Gestion Equities ERAAM Risk +2.02 +6.62 Finaltis Smart Beta +10.75 -0.76 Premium/ Multi-asset Fideas Capital Smart Beta +4.72 +4.87 ABC Arbitrage Arbitrage +6.10 +11.11 La Financière Socially +9.47 +13.98 Responsible Responsible Laffitte Capital Arbitrage -1.31 -1.28 Investment * YTD= Year to Date as of June 30, 2017 ** ITD= Inception to Date as of June 30, 2017 Source: NewAlpha and Paris EUROPLACE 25 1 Objectives of the Tokyo-version EMP Investors ▪ Delivery of excess returns ▪ Disintermediation ▪ Alignment of social values （Reduction of distribution layers, cost Tokyo cutting) EMP Investment targets/ Portfolio Managers asset classes ▪ Investments in growth areas ▪ Discovery and attraction of talent ▪ Investments that promote social ▪ Creation of growth opportunities benefits ▪ Development of talent 26 2 Definition of Emerging Managers for the Tokyo EMP ▪ Selection criteria for emerging managers need to balance between the economic rationality and social impact. Social Economic Impact Rationality Tokyo EMP ▪ Individual track record ▪ Development of small sized, ▪ Company track record independent emerging asset ▪ Investment strategy and style vis-à- managers vis asset owners’ overall portfolio ▪ Revitalization of Tokyo’s economy optimization ▪ Commitment for self-funding ▪ Ability and commitment for fund- raising to some extent, etc.? 27 3 Overall scheme to support emerging managers in Tokyo EMP A Asset Hold seminar for institutional Owners investors to increase awareness of EMP B Governance for seeding platform selection C A Asset Gatekeeper/ Owners Seeding Platforms PM database Hold events to match institutional investors with EM E Servicers EM EM D (Middle/ Back Office EM EM FSA Platforms, Prime Registration Brokers, Custodians, Fast Track etc.) EM EM EM EM Provide support to middle/back Ensure fast entry via joint office operations coordination with the FSA 28 Further considerations NOT EXHAUSTIVE ▪ How to inspire institutional A investors? A Asset ▪ How many institutional investors is Owners optimal to initiate the program? Governance for seeding ▪ How should the governance B structure be designed? platform selection B C ▪ To what extent should TMG stay Gatekeeper/ involved in governance? Seeding Platforms PM database ▪ What are the selection criteria for the seeding platform(s)? C ▪ How many seeding platforms should be selected? EM EM EM EM ▪ What are the selection criteria for emerging managers? EM EM EM EM ▪ What is the scope of asset classes for Tokyo EMP? 29 Advancement of Tokyo global financial city through EMP 30 .
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