Investing pension funds is one area which has attracted heated debate. The composition or nature of these resources has seen investors or stakeholders question key factors like accountability, returns and risks involved. Before deciding on the best way to invest pension funds, it is necessary to take note of the fact that pension funds hold the interest of many as they are a contribution from members of the public. Based on this analysis, fund manager's manager identifies an investment model that will promote financial asset through good and long return for members, effective reporting, and involvement of all stakeholders. Indirect or direct investment mode pension funds must be invested with integrity and efficient financial strategies. Some countries such as Japan can a test to the fact that pension funds hold a big percentage of their economy which can be estimated at 10% or more. This is a clear indication that well-managed pension funds can push a better part of an economy to success. Japan as a country has experienced one of the biggest losses when it comes long term funds loses in the name of pension funds. As a result, the losses, Japan through GPIF (Government Pension Investment Fund) has moved in with adequate laws to help stamp legal control. According to the government stamping, legal control is necessary to ensure all the stakeholder ensure integrity in their business. From this kind of introduction, it is wise to conclude that pension funds should go the indirect investment way.
Japan's Commercial Property Market
Japan is one of the markets by a significant attraction economically; this is drawn from the fact that the country enjoys a high rate of manufacturing operations. Japan's commercial market property is wide, thus pointing out the reason behind the many concerns and regulations set by GPIF. Japan's commercial property market is primarily composed of real estate and vehicle investment. According to many investors in this country, real estate, and vehicle investment stand to earn good long-term returns. The recent patterns in Japan have been a big concern to investors in Japan. Companies and individual with an interest in investing in commercial property through pension funds have raised fundamental questions. Some of these questions are directed towards government while others will go to property managers.
The recent ups and down of the commercial property market in Japan have seen property manager be in the spotlight for a number reasons ranging from poor reporting, lack of stakeholders involvement and little interest. The government of Japan has made numerous and frequent presentations in its efforts of trying to bring the public and other investors up to date with returns and losses incurred. The latest presented by the GPIF in Tokyo communicated an increased pension funds bill. The high pension funds bill in 2015 resulted from the biggest pension fund grim. This pension fund grim resulted in a significant loss estimated around $64 or 5.6% of Japan's global market. From a global market perspective, 5.6% loss is so great to hence the need to take control through stringent regulation. As stated before, the pension bill has grown so high that has seen some investors shy away from companies or investors shy away from joining Japan's commercial property market. Some surveys in Japan held for the last three years reveal reduced commercial property investment as people seek to avoid making losses.
From the above chart analysis, Japans commercial real estate market is not stable; this market is on a downward trend a move that is forcing investors to shy away from the market. The downward trend of Japans commercial market property has also led to increased volatility. Despite the downward trend, it is vital noting that GPIF is putting much effort to bring back stability to this important market. GPIF has been putting much effort and has gone ahead to change its portfolio to 50% with its main aim being boosting returns to helping the economy service rising pension bill. The high pension bill is a blow that has seen big economies scramble. It is on this ground that Japans GPIF is working round the clock to service the high pension bill to a positive level and bring back the confidence of investors.
A survey conducted in 2015 revealed that the rising pension bill instilled fear into investors who have kept off this market. Before the pension grim that resulted in the massive loss, Japan boasted of large real property and vehicle investment. After the loss, pension funds seems to have been diverted to other markets, property managers in these companies have faced massive pressure and seeking to avoid battles with stakeholders. Apart from the real estate, pension funds were invested in vehicles for direct earnings; this has changed massively as pension fund members cannot find answers to the recent low interest offered to them. According to the pension fund members mainly comprising of the public, investment of the funds has seen them witness delayed returns and dismal interest.
Pension funds are indirectly invested in commercial property as both members and companies try to keep off management and another responsibility element regarding interest and quick returns. From the composition of these funds, one will attest to the fact that the vast pool 's hard to manage if invested directly as individual interest and need for quick returns will destabilize the fund base. Indirect investment remains the best mode of investing pension funds as a way of allowing regulation take control. In summary, Japans commercial market property is notable an indication that has seen involved companies called increased capital control policy. To attain this, a 2015 survey picked out management reporting, stakeholder involvement and change to institutional investors.
Many investors still feel that Japan commercial property is lucrative, and proper regulations should be put in place to bring back success. According to the investors, better management reporting, effective involvement of the stakeholders and change in institutional investment will increase commercial property investment. People feel that change to institutional investment will reduce individual risk and promote professional and high regulation. The sensitivity and role played by pension funds call stringent regulation and effective company management.
Direct vs. Indirect Investment
Direct investment entails buying a property in part or whole with the aim of getting direct income or rent. The direct investment allows investors to have straight control of the revenue and interest which might be a short or long term. Direct and indirect investments are clearly differentiated right from their definition points an indication that they differ in some aspects. Direct investment is clearly outlined or defined as the purchase or acquiring whole or part of property within the aim of getting direct returns or earnings such as rent. Indirect investment, on the other hand, involves investing in a product that invests in a property. Despite the outlined differences investors have a duty of deciding on the best mode based on environment, interest and regulation. Understanding these two investment models is one significant element of the modern society as it steers straight decision making.
Investing runs beyond physical properties, this one essential element work, noting when it comes to indirect investment. In Japan as well as some other areas, investing indirectly entails spending on none physical items such as skills and expertise of other qualified personnel which might include property and fund managers. One of the most common ways of investing indirectly across the globe is through commercial property investment. For some time now it has been the most preferred route of indirect investment as it focuses on good earning and high expertise. Commercial property investment might take a number ways one such example is through collective investment schemes. Collective investment schemes such property funds or pensions has offered a good number of people safer and reasonable returns. For example, an individual investing indirectly must take note of the fact that the performance of their investment vehicle has no direct or whole relation to the performance of the property contained in the vehicle. Since indirect investment entails dealing with other resources or expertise of any kind, it is worth noting that the tax treatment might be an issue. Hence, the need seeks worthy and necessary information before taking such investment decision.
|Direct Investment||Indirect Investment|
|Ownership mode||The investor owns the whole of the property.||The investing property or vehicle is not owned by the investor, but instead of another person or company.|
|Mode of earning||The investor gets direct rent on the property and can realize gains or losses.||The investors get approved earnings which might be standard or varied based on the agreed or set percentage.|
|Tax management||Tax issues are straight and definite to the property owner.||Tax issues might a big problem based on the fact that the investor has minimal control of the property.|
Risk and Returns in Real Estate, Japan Vehicle Market
Real estate in Japan remains important despite volatility. This makes it important to analyze the specific returns and risks involved. This kind of analysis is crucial towards decision making. Investing in real estate is not an exception explaining the reason as to why this study focuses on returns and the specific risks involved in real estate investment. Some of the key expected returns in real estate include periodic cash payments and appreciation in market value of the property. Current income is received on a regular basis, in most cases it takes the form well-calculated interest, dividends on shares and direct rent earning among others. Appreciation, on the other hand, recognizes the increase in the value of the property clearly pointing out the worth of the business. In some cases where poor asset management is involved or adverse economic changes, the property might fail appreciate thus depreciating. Japan is a country boasting of great vehicle industry; however this is on a downward trend as a result higher pension bill and the volatility of the market. Japans car industry remains on high risks as the industry is less diversified thus making it difficult to manage weak business points.
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