Japan Pension Fund Considering Emerging Markets Investments

September 17, 2010 (PLANSPONSOR.com) - Japan's public pension fund is weighing the controversial idea of investing in emerging-market economies as a way to gain higher returns as it faces payouts higher than incoming contributions over the next several years.

The Government Pension Investment Fund, the world’s largest, with $1.4 trillion in assets, has more than two-thirds (67.5%) of its assets tied up in low-yielding domestic bonds. According to the Wall Street Journal, the fund plans to sell off a record four trillion yen in assets by the end of March 2011 to free up funds for payouts to Japan’s rapidly aging population. By the year 2055, 40% of Japan’s population is expected to be over the age of 65.  

Some government officials have urged the GPIF to invest in higher-risk, higher-return assets, or to consider setting up a Singapore-style sovereign-wealth fund. Takahiro Mitani, president of the government pension fund, told the Wall Street Journal his mandate is to invest in “safe” assets with a long-term view.   

“In 2008 after the collapse of Lehman, while we posted a negative result we were relatively better than overseas pension funds thanks to our conservative, cautious stance. We posted only single-digit [percentage] loss while others posted double-digit loss,” he said, according to the news report.   

Japan’s pension fund posted its first negative return in five quarters during Q2 2010 (see Japan Pension Fund Posts Loss in Q2 2010).