Japan’s public pension fund, the world’s biggest manager of retirement savings, is considering the first changes to its asset structure in seven years as a new government pursues policies that could erode the value of $747 billion in local bonds.
Managers of the Government Pension Investment Fund, which oversees about 108 trillion yen ($1.16 trillion) in assets, will begin talks in April about whether to reduce its 67 percent target allocation to domestic bonds, Takahiro Mitani, who has been president since 2010, said in a Feb. 1 interview in Tokyo.
The fund may increase holdings in emerging market stocks and is evaluating alternative assets, he said.The GPIF, as the fund created in 2006 is known, didn’t alter the structure of its holdings during the worst global financial crisis in 80 years or in response to the 2011 earthquake and nuclear disaster.
Talks to shift its positions come as Prime Minister Shinzo Abe and the Bank of Japan pledge to restore economic growth and spur inflation, which will mean higher interest rates, Mitani said.
“If we think about the future and if interest rates go up, then 67 percent in bonds does look harsh,” Mitani, who was an executive director at the Bank of Japan when it bought shares from banks in 2002, said.
“We will review this soon. We will begin discussions for this in April-to-May. Any changes to our portfolio could begin at the end of the next fiscal year.”
GPIF, one of the biggest buyers of Japanese government bonds, held 69.3 trillion yen, or 64 percent of total assets, in domestic bonds at the end of September, according to its latest quarterly financial statement.
That compares with 12 trillion yen, or 11 percent, in Japanese stocks. The asset manager had 9.6 trillion yen, or 9 percent of its portfolio, in foreign bonds and 12.6 trillion yen, or 12 percent, in overseas stocks.
Relative Yield
The fund, which took over management of government employees’ retirement savings when it was set up, returned to profit in the three months ended Dec. 31 from a 1.4 percent loss in the first six months of the fiscal year, Mitani said.
He wouldn’t give a figure. It needs to raise about 6.4 trillion yen this fiscal year through March 31 to meet payments, he added.
The yield on Japan’s 10-year government bond was 0.76 percent as of Feb. 1. That compares with a projected dividend yield of 2.08 percent for the Topix Index (TPX), the country’s broadest measure of equity performance.
“JGBs were how we made money over the past 10 years,” Mitani said.
“The BOJ said that they are increasing buying bonds, but they’re also putting power into lowering interest rates. If the economy gets better, then long-term interest rates like a 10-year yield at less than 1 percent are unlikely.”
Risk Appetite
The comments by Mitani, who was appointed in 2010, mark another evolution of the fund’s approach to risk. The pension manager needs to consider higher-risk, higher-yield assets as it’s faced with helping to fund the retirements of the world’s most elderly population.
About 26 percent of the population is older than 65, according to data compiled by Bloomberg. Under Mitani’s leadership, the GPIF began buying emerging- market assets in September 2011 and started purchasing shares in countries included in the MSCI Emerging Market Index (MXEF) last year.
Mitani said in July last year that the fund was selling JGBs to pay for people’s entitlements and might consider alternative investments as it seeks better returns. “There’s the opinion that we need to review our portfolio more often,” Mitani said.
“We created it looking ahead 100 years. We haven’t changed the core portfolio for a long time so it was thought that it’s about time to review this.”
Portfolio Prerequisites
GPIF is the biggest pension fund in the world by assets under management, according to the Towers Watson Global 300 survey in August, followed by Norway’s government pension fund.
The portfolio structure has been broadly unchanged since 2006 when it was formulated with an outlook for consumer prices to rise 1 percent annually. Instead, they have fallen.
“The portfolio was based on a prerequisite of things such as long-term interest rates at 3 percent on average for the next 100 years,” Mitani said. “Whether this is good will be a possible point of discussion.”
Japan’s Topix Index has surged 30 percent since Nov. 14, when elections were announced, on optimism the Liberal Democratic Party will follow through on promises to lead the economy out of recession and end deflation.
The yen slid almost 14 percent in that time, and touched its lowest level since May 2010 last week. Even after 12 straight weeks of advance, the longest winning streak in 40 years, the Topix is still 67 percent below its December 1989 record high.
Relative Value
The measure trades for 1.1 times book. That compares with 2.3 times for the S&P 500, 1.6 times for the Hang Seng Index and 1.9 times for the MSCI World Index. A reading below one means a company can be bought for less than the value of its net assets.
The yen dropped 11 percent last year versus the dollar, the biggest annual slide since 2005. A weaker yen increases the value of exports and typically raises import costs, helping to boost consumer prices.
Amid government pressure, the central bank said in January it will double its inflation target to 2 percent and begin open- ended asset purchases next year.
The Bank of Japan (8301) could add further stimulus if warranted, Deputy Governor Hirohide Yamaguchi said on Jan. 30. “Japanese stocks do not look expensive,” Mitani said. “We’re still in the middle of a rising stocks, weakening yen trend. It will continue for a while.”
bloomberg.com
Managers of the Government Pension Investment Fund, which oversees about 108 trillion yen ($1.16 trillion) in assets, will begin talks in April about whether to reduce its 67 percent target allocation to domestic bonds, Takahiro Mitani, who has been president since 2010, said in a Feb. 1 interview in Tokyo.
The fund may increase holdings in emerging market stocks and is evaluating alternative assets, he said.The GPIF, as the fund created in 2006 is known, didn’t alter the structure of its holdings during the worst global financial crisis in 80 years or in response to the 2011 earthquake and nuclear disaster.
Talks to shift its positions come as Prime Minister Shinzo Abe and the Bank of Japan pledge to restore economic growth and spur inflation, which will mean higher interest rates, Mitani said.
“If we think about the future and if interest rates go up, then 67 percent in bonds does look harsh,” Mitani, who was an executive director at the Bank of Japan when it bought shares from banks in 2002, said.
“We will review this soon. We will begin discussions for this in April-to-May. Any changes to our portfolio could begin at the end of the next fiscal year.”
GPIF, one of the biggest buyers of Japanese government bonds, held 69.3 trillion yen, or 64 percent of total assets, in domestic bonds at the end of September, according to its latest quarterly financial statement.
That compares with 12 trillion yen, or 11 percent, in Japanese stocks. The asset manager had 9.6 trillion yen, or 9 percent of its portfolio, in foreign bonds and 12.6 trillion yen, or 12 percent, in overseas stocks.
Relative Yield
The fund, which took over management of government employees’ retirement savings when it was set up, returned to profit in the three months ended Dec. 31 from a 1.4 percent loss in the first six months of the fiscal year, Mitani said.
He wouldn’t give a figure. It needs to raise about 6.4 trillion yen this fiscal year through March 31 to meet payments, he added.
The yield on Japan’s 10-year government bond was 0.76 percent as of Feb. 1. That compares with a projected dividend yield of 2.08 percent for the Topix Index (TPX), the country’s broadest measure of equity performance.
“JGBs were how we made money over the past 10 years,” Mitani said.
“The BOJ said that they are increasing buying bonds, but they’re also putting power into lowering interest rates. If the economy gets better, then long-term interest rates like a 10-year yield at less than 1 percent are unlikely.”
Risk Appetite
The comments by Mitani, who was appointed in 2010, mark another evolution of the fund’s approach to risk. The pension manager needs to consider higher-risk, higher-yield assets as it’s faced with helping to fund the retirements of the world’s most elderly population.
About 26 percent of the population is older than 65, according to data compiled by Bloomberg. Under Mitani’s leadership, the GPIF began buying emerging- market assets in September 2011 and started purchasing shares in countries included in the MSCI Emerging Market Index (MXEF) last year.
Mitani said in July last year that the fund was selling JGBs to pay for people’s entitlements and might consider alternative investments as it seeks better returns. “There’s the opinion that we need to review our portfolio more often,” Mitani said.
“We created it looking ahead 100 years. We haven’t changed the core portfolio for a long time so it was thought that it’s about time to review this.”
Portfolio Prerequisites
GPIF is the biggest pension fund in the world by assets under management, according to the Towers Watson Global 300 survey in August, followed by Norway’s government pension fund.
The portfolio structure has been broadly unchanged since 2006 when it was formulated with an outlook for consumer prices to rise 1 percent annually. Instead, they have fallen.
“The portfolio was based on a prerequisite of things such as long-term interest rates at 3 percent on average for the next 100 years,” Mitani said. “Whether this is good will be a possible point of discussion.”
Japan’s Topix Index has surged 30 percent since Nov. 14, when elections were announced, on optimism the Liberal Democratic Party will follow through on promises to lead the economy out of recession and end deflation.
The yen slid almost 14 percent in that time, and touched its lowest level since May 2010 last week. Even after 12 straight weeks of advance, the longest winning streak in 40 years, the Topix is still 67 percent below its December 1989 record high.
Relative Value
The measure trades for 1.1 times book. That compares with 2.3 times for the S&P 500, 1.6 times for the Hang Seng Index and 1.9 times for the MSCI World Index. A reading below one means a company can be bought for less than the value of its net assets.
The yen dropped 11 percent last year versus the dollar, the biggest annual slide since 2005. A weaker yen increases the value of exports and typically raises import costs, helping to boost consumer prices.
Amid government pressure, the central bank said in January it will double its inflation target to 2 percent and begin open- ended asset purchases next year.
The Bank of Japan (8301) could add further stimulus if warranted, Deputy Governor Hirohide Yamaguchi said on Jan. 30. “Japanese stocks do not look expensive,” Mitani said. “We’re still in the middle of a rising stocks, weakening yen trend. It will continue for a while.”
bloomberg.com
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