GPIF Posts 1.8% Quarterly Gain as Japanese Stocks Rebound

The world’s biggest retirement fund
swung to an investment gain last quarter as Japanese stocks
rebounded, after posting its first loss since 2012 in the
previous three months.

Japan’s Government Pension Investment Fund made a 1.8
percent return in the quarter ended June as its assets swelled
to 127.3 trillion yen ($1.2 trillion), after a 0.8 percent loss
in the three months through March. Domestic shares returned 5.1
percent and accounted for 17.3 percent of investments, up from
16.5 percent at the end of March. Japanese debt made up 53.4
percent of the fund’s assets, the smallest proportion ever and a
2 percentage-point drop from the previous quarter. The amount of
money invested in foreign bonds and stocks rose to records.

The results indicate GPIF didn’t dramatically accelerate
buying of domestic equities in the April-June quarter, with the
increase in its holdings largely tracking the market’s gain.
Investors are looking for signals the fund is buying local
shares ahead of an asset review expected to be unveiled as soon
as next month. GPIF removed an 18 percent cap on domestic shares
as an interim step before changing its strategy in September,
the Nikkei newspaper reported on Aug. 10.

“Their results show they didn’t buy as much Japanese
stocks as the market had expected,” said Gentoku Kiyokawa,
Tokyo-based director of investment management at BNP Paribas
Investment Partners, which oversees the equivalent of $655
billion in assets globally. “There’s still room for them to buy
should they decide to lift the allocation. But that’s not
announced yet and we don’t know what the weighting will be. I
think market speculation has run ahead of the reality.”

Lowest Ever

Domestic debt made up the smallest share of the fund on
record, while the 67.9 trillion yen invested in the asset class
was the least since the end of 2012. The proportion invested in
local stocks was the most since the period ended March 2006.
Japan’s Topix index climbed 5 percent last quarter, rebounding
from a 7.6 percent slump in the previous three months.

The pension manager’s assets under management rose from
126.6 trillion yen as of March 31, while remaining below a
record 128.6 trillion yen at the end of December. GPIF earned
0.7 percent on its Japanese bonds, the same as the return on a
gauge of the nation’s sovereign debt compiled by Bloomberg.
Foreign equities returned 3.1 percent last quarter, while
overseas bonds posted a 0.6 percent gain. The yen strengthened
1.9 percent against the U.S. dollar.

GPIF has a 60 percent target for domestic debt and 12
percent for Japanese stocks, with 8 percent and 6 percent
deviation limits respectively for those assets. The fund may
increase Japanese equities to 20 percent and reduce domestic
bonds to 40 percent in its portfolio review, according to a
Bloomberg News survey of 10 fund managers, strategists and
economists in May.

Overseas Assets

Foreign stocks accounted for 16 percent of the fund’s
assets at the end of June, bringing total equity holdings to a
third of the fund’s investments. GPIF may allocate more to
foreign and domestic stocks than government bonds for the first
time, Reuters reported on Aug. 7. Overseas debt, which also
includes infrastructure investments, made up 11.1 percent of
GPIF’s portfolio.

GPIF includes in its results a calculation of its asset
allocations assuming a stable 5 percent investment in short-term
holdings, rather than the actual figures. On that basis, the
share of domestic bonds fell below the 52 percent lower limit,
the first time that has happened on a quarterly basis, Shigehito
Aoki, an official at the fund, said at a briefing in Tokyo

Asset Review

Attention now turns to the fund’s portfolio revamp, which
will take place in autumn, according to GPIF investment
committee chairman Yasuhiro Yonezawa. Prime Minister Shinzo Abe
has ordered that it be sped up. The fund will seek to limit the
impact on domestic bonds when reducing holdings, Yonezawa said
in an interview in July. No decision has been made on the timing
of the asset review, Tadashi Aogai, a GPIF official, said at the
briefing today.

Changes to how the fund is run are also being debated.
Yasuhisa Shiozaki, deputy policy chief of the ruling Liberal
Democratic Party
, said this month that GPIF should fix its
governance before altering its portfolio. A law to transform how
the fund is overseen can wait until after the asset review, LDP
official Seiji Kihara, who worked on the bill, told Bloomberg on
Aug. 12.

To contact the reporters on this story:
Anna Kitanaka in Tokyo at;
Shigeki Nozawa in Tokyo at;
Yoshiaki Nohara in Tokyo at

To contact the editors responsible for this story:
Sarah McDonald at
Tom Redmond

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GPIF Posts 1.8% Quarterly Gain as Japanese Stocks Rebound
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