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

Japan Pension To Double Down on Local Stocks; Other Portfolio Shifts Expected


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