Japanese Pension Fund Ups Risk Exposure

March 12, 2002 (PLANSPONSOR.com) - Japan's Government Pension Investment Fund (GPIF) will use a portion of the ¥9 trillion ($70 billion) in new funds earmarked for investment beginning April 1, to increase the risk in its portfolio to boost the fund's lackluster returns, Reuters reports.

The pension fund, which was created in April 2001, has already lost ¥925 billion in it’s first three quarters, due in part to the country’s weak equity market and the central bank’s zero interest rate policy, which have hampered performance for many Japanese funds.

In line with government policy set earlier in the year, the fund will increase its exposure to higher risk assets to 50%, from last year’s 43% in the hope of achieving target annual returns of 4.5%.

Asset Allocation

The ¥35.5 trillion pension fund will trim its allocation to domestic stock from 24% to 26%, investing some ¥1.7 trillion of new money in the Japanese equity market and bringing total exposure to this asset class to ¥8.52 trillion.

GPIF has also earmarked a further ¥11 trillion for domestic stocks over the seven years ending March 2009.

The fund will also trim its exposure to yen bonds, from 52% to 51%.

The fund will maintain its 14% weighting in foreign stocks, the new money bringing the fund’s total assets in the class to ¥ 5 trillion from the previous year’s ¥3.8 trillion. However, it will increase it’s weighting in foreign bonds from 6% to 8%.

Currency strategists agree that the changes in asset allocations will likely not affect the Japanese currency since the changes would take place over a 12-month period, according to Reuters.

Asset Shift

The GPIF was created to replace the Pension Welfare Service Public Corp and will gradually take over the management of all Japan’s state pension money – ¥148 trillion, or $1.15 trillion, in total.

Funds are also being shifted from the finance ministry’s Trust Fund Bureau, which invests solely in Japanese government debt, to the GPIF. The transfer of assets is scheduled over several years. These funds previously financed the government’s Fiscal Investment and Loan Programme (FILP).

After the transfer of assets has been completed, the GPIF aims to have

  • 68% of its assets in Japanese bonds
  • 12% in domestic stocks
  • 7% in foreign bonds
  • 8% in foreign equity
  • 5% in short-term assets.