Japan Pension Delivers Record Return After Portfolio Shift

Japan’s Governmental Pension Investment Fund posted a 12.3 percent return in fiscal year 2014-15, a record annual return for the pension fund.

The gains come as GPIF spent the better part of the year aggressively overhauling its portfolio, ramping up allocations to equities and cutting bonds.

From the Financial Times:

The GPIF delivered an investment profit of Y15.3tn ($125.2bn), taking its total assets to a record Y137.5tn — 28 per cent of Japan’s gross domestic product.

Domestic equities produced the best return, up 30.5 per cent, while the GPIF’s holdings of international equities delivered 22.3 per cent. International bonds generated a return of 12.7 per cent.

In his annual report on the year to March 31 2015, GPIF president Takahiro Mitani said the fund’s main risk was the low interest rate on domestic bonds. “Therefore, our newly formulated basic portfolio is more diversified than before,” he wrote.

Prime Minister Shinzo Abe promoted the shift to a new portfolio to get better returns on the national pension assets. The latest report shows the GPIF’s transformation is almost complete.

Domestic bond holdings are supposed to fall from 60 per cent of total assets to 35 per cent, and with the allocation at 39 per cent as of March 31, the GPIF only had another 4 percentage points to go. The GPIF has been one of the big sellers of Japanese government bonds to the Bank of Japan.

The GPIF is boosting its holdings of domestic stocks from 12 per cent to 25 per cent of the portfolio and putting 25 per cent into international stocks. Those holdings had reached 22 per cent and 21 per cent respectively.

GPIF manages approximately $1.1 trillion in assets, and is the world’s largest pension fund.

Photo by Ville Miettinen via Flickr CC License