Japan Pension’s Portfolio Shift Makes Waves in Market


Japan’s Government Pension Investment Fund (GPIF) is in the midst of a portfolio shake-up that involves doubling its domestic and foreign stock holdings and cutting its domestic bond allocation by nearly 50 percent.

The GPIF isn’t nicknamed “the whale” for nothing – when the world’s largest pension fund moves, it makes waves that can be felt throughout the market.

That’s the case now, according to Bloomberg:

“We can only guess from piecing together the data, but it would seem natural that GPIF, called ‘the whale’ by the market, is moving toward its new portfolio targets,” said Takafumi Yamawaki, the chief rates strategist in Tokyo at JPMorgan Chase & Co. “As the Bank of Japan’s massive bond purchases have reduced liquidity, small catalysts can cause fluctuations in the yield. GPIF’s selling could expedite swings.”

GPIF, the world’s largest pension, pledged in October to reduce its holdings of Japanese debt by about half and double foreign assets and domestic equities, just as the BOJ expanded its unprecedented bond-buying stimulus. The pension’s shift may have exacerbated the decline of local bonds, the second-worst performing government security in the past month, while accelerating the weakening yen and boosting stocks at home, Yamawaki said.


The impact on overseas equities and the yen is smaller as GPIF’s purchases pale in comparison to global market values, said Jonathan Garner, chief strategist for Asia and emerging markets at Morgan Stanley in Hong Kong.

“The main importance is for the domestic equity market,” Garner said in a phone interview on Feb. 12. “It’s another reason to be quite bullish on Japanese stocks.”

Kazuhiko Ogata, an economist at Credit Agricole SA, said tight liquidity in the market is magnifying the effect of GPIF’s domestic bond reduction, causing sharp swings in yields.

The GPIF manages $1.1 trillion in assets.


Photo by Ville Miettinen via FLickr CC License

Japan Pension Isn’t Hedging Against Stronger Yen; Investment Committee Member Calls Strategy “Unbelievable”


A member of the investment committee of the world’s largest pension fund expressed shock this week upon learning that the fund wasn’t hedging against a stronger yen.

Japan’s Government Pension Investment Fund (GPIF) overhauled its investment strategy in 2014, but hedging against the yen isn’t part of its plans.

From ai-cio.com:

Japan’s $1.1 trillion pension fund is refusing to hedge against a stronger yen despite the risks this poses to its growing pool of overseas assets.

The Government Pension Investment Fund (GPIF)—the world’s biggest pension fund—overhauled its strategy last year, buying into Prime Minister Shinzo Abe’s economic plan to boost inflation and weaken the yen. A weaker domestic currency would aid foreign holdings as well as some Japanese equities, asset classes to which the GPIF is increasing exposure.

However, Junko Shimizu, a professor at Gakushuin University and a member of the GPIF’s investment committee, told Bloomberg it was “unbelievable” that the pension had not moved to hedge the risk of the yen strengthening relative to other currencies. “My personal opinion is that they should look to hedge,” she added.

Shinichirou Mori, director of the planning department at the GPIF, said the pension did not make decisions “based on currency forecasts. We wouldn’t hedge based on a forecast.”

The GPIF manages $1.1 trillion in assets.


Photo by Ville Miettinen via FLickr CC License

Japan Pension Hires Four Managers to Oversee Equities in Wake of Portfolio Overhaul


Japan’s Government Pension Investment Fund in 2014 decided to make major changes to its portfolio, including a doubling of its equity allocation from 25 to 50 percent.

The pension fund this week hired four external managers to oversee portions of the fund’s equity portfolio.

From Bloomberg:

The $1.1 trillion Government Pension Investment Fund picked Schroder Investment Management Ltd., Daiwa SB Investments Ltd. and Nomura Asset Management Co. to oversee Japanese traditional active investments, and UBS Global Asset Management for foreign active holdings, it said today. GPIF didn’t say how much money the funds would manage.


“Passive stock holdings had become extremely high, so it looks like they’re trying to adjust this,” said Kenji Shiomura, a Tokyo-based senior strategist at Daiwa Securities Group Inc. “Also, there are limits to how much some of their existing managers, like their engagement fund, can oversee. As they increase stocks, they’re trying to avoid a situation where their share of passive investments increases further.”

GPIF had 14 active Japanese equity funds managing a total 2.6 trillion yen as of March 31, compared with 10 passive funds with 18.3 trillion yen. For foreign stocks, 15 funds managed 2.1 trillion yen in active investments, compared with six funds overseeing 17.6 trillion yen in passive strategies.

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


Photo by Ville Miettinen via FLickr CC License

Japanese Government Officials Disagree Over Pension Fund Changes


2014 was a year of change for Japan’s Government Pension Investment Fund (GPIF), and 2015 will bring more of the same.

Aside from appointing a chief investment officer, the pension fund is overhauling its investment strategy and hiring new managers.

But Japan’s welfare minister, Yasuhisa Shiozaki, along with other government officials, might not be on the same page as the GPIF.

From the Wall Street Journal:

Japan’s welfare minister has frequently disagreed with officials in Prime Minister Shinzo Abe ’s government over the nation’s $1.1 trillion Government Pension Investment Fund, according to people familiar with the matter, adding uncertainty to efforts to remake the fund.


Fights over the process—including the recent hiring of a London-based private-equity executive as chief investment officer—have broken out between Mr. Shiozaki’s camp and other officials at his Ministry of Health, Labor and Welfare, as well as aides to Mr. Abe, according to those involved.


So far, the disagreements haven’t significantly derailed Mr. Abe’s plans. But in an interview Wednesday, Mr. Shiozaki laid out a cautious investment strategy and declined to praise the chief investment officer, Hiromichi Mizuno.

Mr. Mizuno’s appointment “was decided by the GPIF’s president, so I don’t think it’s the kind of thing I should comment a lot about,” said Mr. Shiozaki.

He went on, “Mr. Mizuno must do his best to fulfill the necessary condition of being able to invest in a safe and efficient manner. That is what we expect. If he can’t do that—if it does not come out in favor of pensioners—then that’s a problem.”

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


Photo by Ville Miettinen via FLickr CC License

Japan Pension CIO Gets 60 Percent Pay Raise


Japan’s Government Pension Investment Fund (GPIF) has already indicated they will increase salaries for their money managers in a bid to attract more talent.

But the fund’s chief investment officer is getting a raise, as well. Hiromichi Mizuno, the fund’s CIO, will get a 64 percent pay bump this year.

The GPIF hopes the gesture will demonstrate their willingness to shell out cash for talent.

From Bloomberg:

Japan’s Government Pension Investment Fund will increase total annual compensation of its president to about 31 million yen ($260,000), including salary, bonuses and allowances, according to calculations by Shinichiro Mori, a director at the fund’s planning section. That compares with 18.9 million yen previously slated for the year ending March 31, Mori said by phone. The pay increase is effective this month, he said.

Boosting pay may help the pension fund hire more money managers from the private sector as it shifts more of its $1.1 trillion from bonds to riskier assets. Even after the increase, the GPIF’s top official will be paid almost 40 percent less than the chief executive officer at the California Public Employees’ Retirement System, the largest U.S. public pension.

“Compared with global standards and given the responsibility as the top asset manager, the amount still isn’t that big,” said Tetsuya Sakabe, managing director at recruitment adviser Kanae Associates Ltd. in Tokyo. “But it’s positive to see that they’ve improved the compensation structure and the amount is reasonable enough to avoid incurring criticism from the public.”


GPIF won flexibility from the health ministry last March to pay higher salaries.

“GPIF decided the president’s new pay standard after a comprehensive review taking into account consistency with other public organizations,” including the central bank, Mori said in the phone interview on Jan. 6. For the CIO, “we took into account the trend at private financial firms in order to secure highly professional human resources, without exceeding the pay level for the president.”

The GPIF manages $1.1 trillion in assets and is the largest pension fund in the world.


Photo by Ville Miettinen

Japan Pension Begins Search For New Money Managers


The end of 2014 was a busy period for Japan’s Government Pension Investment Fund (GPIF). The fund overhauled its asset allocation and will be putting 50 percent of its assets in equities while cutting its bond holdings.

In a related move, the fund will be looking for a new crop of money managers to handle investment duties, and the GPIF is willing to shell out more money for better talent.

Businessweek reports that the GPIF could begin recruiting managers officially next month. From Businessweek:

Japan’s Government Pension Investment Fund may use a private seminar next month to inform potential job applicants as part of its efforts to recruit professional money managers to the world’s largest investor of retirement savings.

Yasuhiro Yonezawa, chairman of the investment committee at the $1.1 trillion fund, is expected to discuss GPIF’s reforms and the qualifications it wants from future staff, said Nobukiyo Akiyama, an executive at Kotora Co., a Japanese executive search firm that’s organizing the Feb. 13 event.

GPIF is seeking to hire experienced investors as it shifts to riskier assets from bonds in anticipation of faster inflation under Prime Minister Shinzo Abe. Hiromichi Mizuno, a former partner of London-based private-equity firm Coller Capital Ltd., became its first chief investment officer this month.

“The fund will have to obtain professionals that have know-how and skills for private equity, venture capital and real-estate investments following the reform, besides back-office staff,” Akiyama, manager of the chief executive officer’s office at the Tokyo-based executive search firm, said in an interview yesterday. “That’s a very specialized area.”

Kotora, which has 20,000 job seekers registered with the firm, plans to invite 80 individual and corporate clients from the asset-management industry to the seminar, which will be held in Tokyo, Akiyama said.


The pension fund won flexibility last year to pay higher salaries to attract investment staff instead of government officials.

The GPIF plans to hire about 40 new managers, according to Businessweek.

The fund manages $1.1 trillion in assets and is the largest pension fund in the world.


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Report: Japan Pension Set to Benefit From Reforms


Japan’s Government Pension Investment Fund (GPIF) – the largest pension fund in the world – implemented numerous changes in 2014, including an asset allocation shake-up and the hiring of its first chief investment officer.

A new report says the reforms will benefit the fund going forward. From Chief Investment Officer magazine:

A report jointly published by Cerulli Associates and the Nomura Research Institute (NRI) stated that the reforms to the ¥130.9 trillion ($1.1 trillion) pension, announced by its management team earlier this year, would help it become “more dynamic.”

“In terms of hiring, the GPIF will not be shackled by low salaries and will be better positioned to recruit top-notch talent,” said Yoon Ng, Asia research director at Cerulli Associates. “This will add more quality to its external manager selection processes.”


“With public pension fund reforms in place, the GPIF… may show a stronger tendency to hire managers with highly distinctive investment strategies that are differentiated from and relatively uncorrelated with other companies’ strategies,” the report offered.

Atsuo Urakabe, a senior researcher at NRI, said the new asset allocation would push the GPIF to hire managers with “highly distinctive investment strategies” that can offer uncorrelated performance, as it seeks to achieve a higher annual return.

Cerulli’s report said Japanese pension funds had been “bogged down by ultra-conservative investment policy requirements” but pointed to the GPIF’s reforms as an indication that other pensions in the country could revise their asset allocations, diversify, upgrade risk management, and reform governance.

As well as identifying external managers, Cerulli’s research paper predicted that Japanese public pension funds outside of GPIF may seek to build up their in-house expertise.

“In the long run, this will help to bring their costs down and lead to some insourcing of assets that had previously been farmed out to be managed,” the report said.

The GPIF manages $1.1 trillion in assets.


Photo by Ville Miettinen via Flickr CC License

Experts: Japan Pension Should Be Run By Board, Not President


Currently, Japan’s Government Pension Investment Fund (GPIF) – the largest pension fund in the world – is managed by a President.

The sole trustee system is rare; it is used by a few pension funds in the United States, but more typically a board of trustees is utilized to make investment policy and governance decisions.

Now, experts are calling on the GPIF to switch to a board of trustees model.

From the Wall Street Journal:

[The] Government Pension Investment Fund should be managed by a board of directors rather than a president, as is currently the case, a panel of outside experts has concluded.


“If the coach plays with the players in a sports game, if there are mistakes in the game, it’s hard for the coach to make the tough calls he should be making as coach,” said Shuya Nomura, a Chuo University professor who was appointed last month as an adviser to the welfare minister on GPIF issues, referring to how the board of directors should be structured.

The meeting ran 30 minutes over the scheduled time as members argued over whether you could compare the GPIF to the Bank of Japan 8301.TO -0.21% or a public company. They also couldn’t reach consensus about how a nomination panel to appoint fund officials should be structured.

Perhaps it shouldn’t come as a surprise that the group has differed on some issues. Welfare Minister Yasuhisa Shiozaki, an Abe appointee and a staunch advocate of an aggressive overhaul of the fund’s management, pushed hard for the group to be formed, and some of its members have expressed views similar to his. But bureaucrats at the health ministry, which oversees the GPIF, argued that the group should include more cautious voices.

The group will present its ideas to the health ministry panel for further discussion, and eventually the ministry will draft a law to submit to parliament.

The GPIF manages $1.1 trillion in assets.


Photo by Ville Miettinen via Flickr CC License

Questions Raised About Return Assumption of Japan Pension


Some experts, including a senior economist at the Japan Research Institute, have questioned whether Japan’s Government Pension Investment Fund (GPIF) is being too optimistic by assuming a 6 percent return per year on its domestic equity portfolio.

From the Asian Review:

The managers of Japan’s huge Government Pension Investment Fund must have their heads in the clouds to expect domestic shares to return an impressive 6% a year, some observers say.

The $1 trillion fund’s new medium-term investment plan, released at the end of October, assumes that economic growth and other macroeconomic conditions will resemble the Japan of 1983-93. But its expected nominal return on Japanese equities is based on corporate earnings from 1983 to 1989 — the high-flying years before the nation’s asset-price bubble burst.

Japanese bonds make up 35% of the GPIF’s new asset mix, down from 60% in the old portfolio model. Meanwhile, the fund’s target allocations for domestic and foreign stocks have each more than doubled, from 12% to 25%, while its allocation for foreign bonds has risen from 11% to 15%.

When it comes to international bonds and equities, the GPIF expects nominal returns of 3.7% and 6.4% at best. But its “upside scenario” for domestic stocks has them rising at 6% — a rate at which an investment, if compounded, would roughly double in 12 years. To arrive at this number, the fund crunched share prices, dividends, earnings per share and other stock-related data from 1983 to 1989.

Although Japanese shares returned far more than 6% during the bubble era, they did so amid an unprecedented economic boom. The odds of such an earnings-supported-rally occurring again are debatable. As to why the fund’s baseline for domestic equity returns ends at 1989, not 1993 as in the economic assumptions, GPIF President Takahiro Mitani said it was to control for the effects of the bubble bursting.

Japan’s GPIF is the largest pension fund in the world with $1.1 trillion in assets.


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Japan Pension Considers Change In Stock Classifications


Japan’s Government Pension Investment Fund (GPIF) last month decided to double the amount of assets allocated to domestic and foreign stocks.

Now, the President of the GPIF is considering further changes that would remove the distinction between domestic and foreign stock holdings.

From Bloomberg:

Japan’s Government Pension Investment Fund is considering whether to overhaul its $389 billion of stock investments by loosening rules that restrict managers to domestic or international equities.

A month after the $1.1 trillion pool unveiled plans to more than double local and foreign share targets so that each makes up 25 percent of assets, Takahiro Mitani, its president, said separating the world into Japan and everywhere else may not be the best approach. GPIF should consider letting some of its managers invest both at home and abroad, he said.

“More funds are investing without discriminating between domestic and foreign, and I think that’s worth considering,” Mitani, 65, said in an interview in Tokyo on Dec. 3. “If choosing between Toyota and Volkswagen, instead of being limited to just Toyota and Nissan, raises investment performance and efficiency, it’s an option we mustn’t rule out.”

The California Public Employees’ Retirement System, the biggest U.S. public pension, makes no distinction between local and foreign holdings. Calpers, which oversees about $295 billion, has a 51 percent target for public equities, according to its website. GPIF’s stock investments were parceled out to managers in 45 different pieces as of March 31, according to the fund’s annual report.


GPIF would have to revise its systems to allow one manager to invest across Japanese and non-domestic shares, Mitani said. Alternatively, it could create a new global stock class on top of the existing ones, he said. The fund is due to review foreign equity managers in about 18 months, according to Mitani, who said he plans to retire when his five-year term finishes at the end of March.

Regardless of how it deploys managers, the Japanese fund is looking to put more money in foreign assets at a time when its home currency is slumping. The yen weakened past 120 per dollar for the first time in seven years yesterday.

Here’s what the fund’s asset allocation targets look like after last month’s overhaul:

GPIF’s new portfolio is split into four asset classes: the 25 percent targets for Japanese and foreign stocks, up from 12 percent each; the 35 percent allocation to domestic bonds and 15 percent for foreign debt, an increase from 11 percent. The fund had 18 percent of its holdings invested in Japanese stocks at the end of September.

Government Pension Investment Fund is the largest pension fund in the world. It manages $1.1 trillion in assets.
Photo by Ville Miettinen via Flickr CC License

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