If you protect the fruit trees, they will naturally produce fruit

February 22, 2021
by Noriyuki Morimoto

In dairy, keeping cows is for the aim of milking them. Cows amount to fruit trees and milk to fruit. Dairy farmers take good care of cows in the same sense that there would be no fruit without fruit trees.

For people who live on rent income, real estate is the fruit tree and rent is the fruit. People who live on interest income rely on returns from bonds and dividends on stocks, so they cannot part with the bonds and stocks that amount to fruit trees.

The corporate pension fund system holds pension assets as fruit trees and allocates investment income, amounting to fruit, as pension benefits. Therefore, withdrawal from pension assets is not planned, as they are assumed to be permanently managed to keep producing fruit.

If the expected interest rate is 3% and the amount of assets is 100 billion yen, the interest dividend is expected to be 3 billion yen per year. In this case, if the annual benefit amount is 6 billion yen, the annual premium amount would suffice at 3 billion yen. This arithmetic is the basis of the economy of corporate pensions as a pre-funding system.

As corporate pension assets amount to cows in dairy farming, they must not be damaged and must have a permanent reserve base. If the assets decrease by 10 billion yen, the interest amount will be 2.7 billion yen for the interest rate of 3%, which is a shortage of 300 million yen. If the shortfall is withdrawn from assets, the asset shortage will expand, the interest shortage in the next fiscal year will increase, and a negative chain will occur in which the shortage creates more shortage.

Therefore, the purpose of asset management of corporate pensions is, theoretically, to protect assets and earn stable interest and dividend income. However, in the actual practice of managing pension assets in corporate pensions, increasing the assets is often regarded as the purpose.

The damage to assets occurs because of the aim to increase assets. On the contrary, if you try to maintain your assets, you will get stable interest and dividend income as a result, in the same way that when you protect the fruit trees they will naturally produce fruit.


[Category /Investment Philosophy]

Noriyuki Morimoto
Noriyuki Morimoto

Chief Executive Officer, HC Asset Management Co.,Ltd. Noriyuki Morimoto founded HC Asset Management in November 2002. As a pioneer investment consultant in Japan, he established the investment consulting business of Watson Wyatt K.K. (now Willis Towers Watson) in 1990.