The above interview features Axel Merk, President and Chief Investment Officer of Merk Investments, talking about the impact of the asset allocation shifts untertaken by Japan’s Government Pension Investment Fund (GPIF) earlier this month.
From the video description:
Axel Merk, President and Chief Investment Officer, Merk Investments, says the overdue correction in U.S. stocks is delayed due to the asset allocation change in Japan’s Government Pension Investment Fund (GPIF).
Japan will appoint a private equity executive, Hiromichi Mizuno, to the newly created Chief Investment Officer post at the Government Pension Investment Fund, the largest public pension fund in the world.
Hiromichi Mizuno is a partner at private equity firm Coller Capital.
More details from the Wall Street Journal:
The appointment would put the 49-year-old from central Japan in control of the world’s biggest fund of its kind as it tries to boost returns with more aggressive investments.
Mr. Mizuno would be a big catch for the fund, which has struggled to attract outside talent because of low salaries and a small budget. Despite its size, the GPIF’s roughly 80 employees are squeezed into one floor of a 1970s office building in downtown Tokyo and most of its investments are managed by outside asset management firms.
Mr. Mizuno was educated in the U.S. and speaks fluent English, which addresses concerns of foreign investment firms that had trouble working with GPIF.
[…]
The GPIF is headed by its president, Takahiro Mitani, who has ultimate decision making power under the current law, but Mr. Mizuno would be de facto in charge of overseeing important investment decisions. Rather than make investments himself, Mr. Mizuno will spend more time choosing professional fund managers to oversee portions of the fund’s investments.
Mr. Mizuno joined the GPIF as an adviser and a member of its investment committee, an eight-member group that advises the fund part-time, in July. At a news conference last month, Mr. Mitani said described Mr. Mizuno’s expertise in private equity as “invaluable.”
The Government Pension Investment Fund manages $1.1 trillion in assets.
Photo by Ville Miettinen via Flickr CC License
The video [above] discusses the decision by Japan’s Government Pension Investment Fund (GPIF) to double its allocation to equities and slash its bond holding, a move that coincides with the Bank of Japan boosting stimulus.
The video description reads:
John Herrmann, rates strategist at Mitsubishi UFJ, and Gary Langer, founder and president at Langer Research Associates, discuss the potential impact of the Bank of Japan boosting stimulus while pension funds move to equities from bonds and how the stock market figures into people’s every day economic lives. They speak on “Bloomberg Surveillance.”
Japan’s Government Pension Investment Fund has officially announced major changes to its portfolio. The pension fund had been reviewing its investments since the summer, but it wasn’t known when the process would end.
The shifts include doubling its equity allocations, cutting bonds by nearly 50 percent and a new target allocation for alternatives of 5 percent.
From Business Week:
Japan’s public retirement-savings manager will put half its holdings in local and foreign stocks and start investing in alternative assets as the world’s biggest pension fund seeks higher returns.
The 127.3 trillion yen ($1.1 trillion) Government Pension Investment Fund set allocation targets of 25 percent each for Japanese and overseas equities, up from 12 percent each, it said at a briefing today in Tokyo. GPIF will reduce domestic bonds to 35 percent of assets from 60 percent. The new figures don’t include an allocation to short-term assets, while the previous targets did. Analysts surveyed by Bloomberg this month had anticipated levels of 24 percent for local stocks, 15 percent for global shares and 40 percent for Japanese bonds, taking short-term holdings into account.
The new allocations were released hours after the Bank of Japan unexpectedly added to monetary easing, sending the Nikkei 225 Stock Average to a seven-year high. Reports that the fund’s announcement was coming today also buoyed shares. Investors have been awaiting the revised strategy since a government panel said last year GPIF was too reliant on domestic bonds, with the central bank stoking inflation and pension payouts mounting as the nation’s population ages.
GPIF increased its target for foreign bonds to 15 percent, up from 11 percent. The fund will put as much as 5 percent of holdings in alternative investments such as private equity, infrastructure and real estate, with those accounted for within the other asset classes rather than as a separate allocation.
The Government Pension Investment Fund is the largest public pension fund in the world. It manages $1.1 trillion in assets.
Photo by Ville Miettinen
Analysts and economists are expecting Japan’s Government Pension Investment Fund (GPIF) to double its allocation to domestic equities and reduce its bond holdings, according to a new Bloomberg poll.
The changes could come at any time in the next month or so; GPIF has been reviewing its portfolio since July and said the process would end sometime in the fall.
From Bloomberg:
Japan’s $1.2 trillion pension fund will double its allocation target for local stocks, according to analysts, who’ve ratcheted up expectations for equity buying while sticking with projections for a reduction in bonds.
The Government Pension Investment Fund will increase its domestic equity allocation to 24 percent of assets from 12 percent, according to the median estimate of 12 fund managers, strategists and economists polled by Bloomberg over the past two weeks. That’s up from 20 percent in a similar survey in May. The Topix index soared 4 percent on Oct. 20 on a Nikkei newspaper report that the fund would set a 25 percent local-share target.
Speculation about the behemoth’s new strategy has held Japan’s markets in sway since a government-picked panel said almost a year ago that GPIF was too reliant on domestic bonds. The fund will slash its local debt allocation to 40 percent from 60 percent, unchanged from May, the median survey prediction shows. Credit Agricole SA and Barclays Plc say anticipation for the shift is so high that equities are vulnerable to a sell-off on the announcement.
“I think investors will sell Japanese stocks on the fact after buying on the rumor,” said Kazuhiko Ogata, chief Japan economist at Credit Agricole. “Over the medium and longer term, the changes will buoy demand for shares and gradually support the market.”
The fund’s foreign holdings will likely undergo change as well, according to the analysts polled by Bloomberg:
The fund’s allocation to overseas equities will be 15 percent, up from the current 12 percent, while the goal for foreign debt will rise to 13.5 percent from 11 percent, according to the median projections in the Bloomberg survey, which was conducted Oct. 22 to Oct. 28.
“Back in May I thought they would allocate more to foreign assets to weaken the yen, but it seems they are more focused on Japanese stocks,” said Genji Tsukatani, a portfolio manager in Tokyo at JPMorgan Asset Management Inc. “They may want to keep the currency from falling too much with a weaker yen being criticized domestically.”
[…]
The fund had 17 percent of assets in domestic shares at the end of June, near the maximum 18 percent it can own under current rules. It also had 53 percent in domestic bonds, 16 percent in foreign equities, 11 percent in overseas debt and 2 percent in short-term assets.
GPIF is the world’s largest public pension fund. It manages $1.2 trillion in assets.
Photo by Ville Miettinen
Japan’s Government Pension Investment Fund (GPIF) is in the process of increasing its domestic equity holdings from 12 percent of its portfolio to around 20 percent.
The pension fund announced the plan in June and the implementation is well underway – but one of the fund’s top advisors called the announcement “stupid”.
Why? Here’s his logic, explained by Chief Investment Officer magazine:
Takatoshi Ito, a vocal proponent of overhauling Japan’s $1.2 trillion Government Pension Investment Fund (GPIF), has been among those encouraging the giant fund to increase its allocation to domestic equities. But in an interview with Bloomberg this week, he warned against publishing target weightings before making asset allocation changes as the information could move markets before GPIF has a chance to access good prices.
Ito said: “Saying ‘we’re going to purchase as much as whatever percent’ before buying anything is a stupid idea. It’s tantamount to not fulfilling their fiduciary responsibilities and not appropriately investing the money entrusted to them. It’s wrong, and I’m against it.”
Ayako Sera, a market strategist at Sumitomo Mitsui Trust Bank, also hit out at the idea of announcing the allocation changes before acting. He said: “The market will front-run it, and our pension money will be invested at highs. It makes it pointless to entrust our savings to experts, and we should ask for it back so we can manage it ourselves. It makes those experts meaningless.”
The GPIF is currently reviewing its asset allocation, with Prime Minister Shinzo Abe having urged the fund to reach a decision this year. Ito said the fund has probably not started any shift yet, as it would become obvious through market data and filings when the trillions of yen expected to be reallocated start to move.
GPIF plans to slash its fixed-income holdings and shift more money towards domestic equities:
At the end of June the GPIF had 53.4% in domestic fixed income and 17.3% in Japanese equity. Ito’s personal recommendation, according to Bloomberg, was to slash the fixed income element to 35% of the portfolio and increase Japanese equities to 25%. This would involve the sale of roughly $220 billion in bonds and the purchase of roughly $96 billion in equities, based on the fund’s June 2014 valuation of ¥127 trillion ($1.2 trillion).
The GPIF manages $1.2 trillion of pension assets.
Photo by Ville Miettinen via Flickr CC License
