Japan’s GPIF Posts Record Annual Performance, Allocation Shifts

photosynleafSlight modifications in asset allocation can benefit Japan’s Government Pension Investment Fund (GPIF) which is the largest public pension fund in the world. Japanese Prime Minister Shinzo Abe’s administration has embarked on an ambitious growth strategy for Japan; part of the plan includes guiding public savings toward the stock market to stimulate growth. The GPIF along with other public funds and government funds have been urged to invest in Japanese equities as well as overseas equities. The possible, incredible mobilization of savings will hopefully augment corporate investment and consumer spending.

Imagine nearly US$ 2 trillion in public investor capital allocating a greater percentage toward Japanese equities.

Performance wise in early 2013, equities have been a blessing for the GPIF posting a strong 2012-2013 record return generating 10.23% versus a return of 2.32% from the previous year. As of March 31, 2013, the GPIF holds ¥120.5 trillion (US$ 1.2 trillion) in assets. Most notably, there was a 23% return in Japanese stocks and 29% in overseas equities. A weaker Yen helped these numbers.

GPIF – Policy Asset Mix

Domestic bonds Domestic stocks International bonds International stocks Short-term assets
Future 60% 12% 11% 12% 5%
Previous 67% 11% 8% 9% 5%

Source: Government Pension Investment Fund (Japan)

Change is coming as the mega pension fund will be slicing Japanese government bonds in favor of equities. The pull toward higher-yielding assets is partly a complement to Japan’s aging demographic. Executives at the GPIF conducted a handful of analyses determining increased risk in JGBs because of duration lengthening. Another analysis was conducted on correlations and that risks of stocks and international bonds were lowered when four additional years were added post-crisis. Last, the modification in policy mix has been tested to perform well in a number of scenarios including one in which the long-term interest rate will increase in five to seven years.

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