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Japan overhauls its public pension fund, the world's biggest

Source: Reuters - Tue, 22 Apr 2014 05:34 GMT
Author: Reuters
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* New panel retains balance of academics and economists

* Asset size of GPIF larger than economy of Mexico

* Members to play key role in setting new allocation targets (Adds Citi's comments)

By Chikafumi Hodo and Takaya Yamaguchi

TOKYO, April 22 (Reuters) - Japan overhauled the world's biggest public pension fund on Tuesday, appointing new committee members, in a push toward Prime Minister Shinzo Abe's goal of a more aggressive investment strategy.

The government announced a reshuffle of the Investment Committee of the $1.26 trillion Government Pension Investment Fund (GPIF), in line with Abe's drive to have the fund make riskier investments and rely less on low-yielding government bonds.

Global financial markets are keenly watching GPIF's investment strategy as the fund, bigger than Mexico's economy, is a huge investor and a bellwether for other Japanese institutional investors.

The new committee will play a leading role when GPIF sets its new investment allocation targets over the coming months. Abe has promised GPIF reform as an element of his growth strategy, the "third arrow" in his policy, following aggressive monetary and fiscal stimulus.

Health Minister Norihisa Tamura, who appoints the GPIF Investment Committee members, shrank the panel to eight members from 10 as part of the overhaul. Two members retained their seats and one former member was brought back on.

Tamura said on Tuesday he hopes that new investment advisers will use their expertise to raise investment returns, while controlling risks and taking into account economic development in setting up new investment targets.

"The interests of pension beneficiaries come first in pension fund management," Tamura told a news conference after the regular cabinet meeting.

The panel retains a balance of academics and economists, with one representative each from the main trade union federation - whose pensions are at stake - and the biggest business lobby.

But in a sign of Abe's more aggressive strategy, three of the now eight members sat on the advisory panel that spearheaded a change in the fund's strategy last year to achieve higher investment returns.

They are Sadayuki Horie, senior researcher at Nomura Research Institute; Isao Sugaya of the JTUC Research Institute for Advancement of Living Standards, a think tank of Japan's top labour federation; and Yasuhiro Yonezawa, a professor of Waseda University's graduate school of finance.

Yonezawa, an expert on pension matters, headed the GPIF Investment Committee from 2008-2010 and sits on several advisory panels of the Health Ministry's Pension Fund Bureau.

Tamura declined to comment on who will head GPIF's investment committee.

The advisory panel was led by Tokyo University Professor Takatoshi Ito, who has been outspoken in calling for GPIF to undertake a more aggressive investment strategy.

ASSET ALLOCATION

Financial markets showed muted reaction to GPIF's personnel change, but dealers were concerned about how the public fund would potentially change its investment strategy.

"We believe this will be a major step for the world's largest pension fund to review its portfolio, increasing risk assets as well as reducing JGB holdings," Citi said in its forex report.

"To stabilise JGB markets, the possibility of additional Bank of Japan asset purchase will grow. In our view, they're important elements to promote Japanese yen depreciation going forward," it said.

GPIF, which was set up in 2001, conducted the biggest shake-up of its investment strategy last June when it revised its allocation targets to raise the core weighting for Japanese stocks and lower the weighting for domestic bonds in a bid to achieve higher returns.

GPIF now targets 12 percent of its investments in Japanese stocks, 60 percent in domestic bonds, 11 percent in foreign bonds, 12 percent in foreign stocks and 5 percent in short-term assets.

In February, GPIF agreed with Canada's Ontario Municipal Employees Retirement System and the Development Bank of Japan to invest in infrastructure projects through an investment trust fund.

GPIF recently began benchmarking some passive investments to the new JPX 400 index, which focuses on return on equity and corporate governance. The fund also uses more active investment strategies, in line with the Ito panel's recommendations.

GPIF has said it plans to expand its investment in foreign bonds to emerging markets bonds, foreign high-yield bonds and foreign inflation-linked bonds. (Editing by Jacqueline Wong)

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