World’s Biggest Pension Fund ‘Will Likely’ Sell Japan Bonds

Government Pension Investment Fund President Takahiro Mitani
Takahiro Mitani, president of the Government Pension Investment Fund (GPIF). The GPIF, which oversees 117.6 trillion yen ($1.4 trillion), in September forecast that it would sell 4 trillion yen in assets in the business year ending March 31 to fund payouts. Photographer: Kimimasa Mayama/Bloomberg

Japan’s public pension fund, the world’s largest, said it may become a net seller of bonds to cover payments in the world’s most rapidly aging society.

The Government Pension Investment Fund, which oversees 117.6 trillion yen ($1.4 trillion), in September forecast that it would sell 4 trillion yen in assets in the business year ending March 31 to fund payouts. Sales may be less than that in the year starting April as bonds reach maturity, said Takahiro Mitani, president of the fund, known as GPIF.

“We will likely be a net seller in the market,” Mitani, a former executive director at the Bank of Japan, said in an interview in Tokyo yesterday. “We certainly have to come up with an adequate amount” to pay pensions, he said, declining to elaborate on the amount.

Sales by the fund, which helps oversee public pension funds for Japan’s 37 million retirees, come as the first of Japan’s baby boomers is set to turn 65 in 2012, making them eligible for pension payments. In the year ended March 2010, GPIF raised 720 billion yen in part through selling assets to fund the payouts. Almost 40 percent of Japan’s population will be older than retirement age in 2050, according to the statistics office.

The GPIF, historically one of the biggest buyers of Japanese debt, held 82.4 trillion yen in domestic bonds, or 70 percent of its assets, as of September, according to the fund’s latest quarterly financial statement. That compares with 12.6 trillion yen in Japanese stocks, or 10.7 percent, 9.6 trillion yen, or 8.2 percent, in foreign bonds and 11.5 trillion yen, or 9.7 percent, in overseas stocks, the report shows.

‘Need to Sell’

GPIF is the biggest pension fund in the world by assets under management, according to the Towers Watson Global 300 survey in September, followed by Norway’s government pension fund.

The fund, which set out a five-year investment plan last March, said it will continue to allocate about two-thirds of its assets to domestic bonds, 11 percent to Japanese stocks, 8 percent to foreign bonds, 9 percent to overseas equities and 5 percent to short-term assets until March 2015.

“They need to sell, otherwise it’s not enough,” said Takahiro Tsuchiya, a strategist at Daiwa Institute of Research Ltd. “Because their allocation is already decided, they’ll probably sell the asset classes that have increased in price.”

GPIF doesn’t plan to start investing in so-called alternative assets such as commodities, real estate, infrastructure, private equity or hedge funds because the risks don’t suit its strategy, Mitani said.

‘Too Early’

“It’s too early to get into alternative investments now,” Mitani said. “Japanese investors are conservative and it’s hard to justify to the public investing in asset classes such as commodities, real estate and hedge funds.”

After two years of losses following the onset of the global financial crisis, the fund returned to profit in the business year ended March 2010, as equity markets recovered globally, Mitani said in the fund’s latest annual report. The total return for the last fiscal year was 7.9 percent.

Japan’s 10-year bonds declined for the first time in four days today. The benchmark 10-year yield rose 1.5 basis points to 1.235 percent as of 9:21 a.m. at Japan Bond Trading Co., the nation’s largest interdealer debt broker. The 1.2 percent security due December 2020 lost 0.131 yen to 99.693 yen. A basis point is 0.01 percentage point.

Aging Society

Japan’s 10-year bond yield is the lowest in the world, data compiled by Bloomberg show. Japan’s gross domestic product shrank an annualized 1.1 percent in the three months ended Dec. 31, the Cabinet Office said on Feb. 14, and China’s economy overtook Japan’s as the world’s second largest for 2010.

People aged 65 or older will account for 29 percent of the country’s population in 2020 and almost 40 percent in 2050, according to the statistics bureau. They accounted for 23 percent population at the end of 2010, the highest among the Group of Seven countries, data compiled by Bloomberg show. That compares with 12 percent in 1990.

About 8 million people, or 6 percent of the population, were born between 1947 and 1949, regarded as the baby-boomer generation in Japan, government data show.

The number of pensioners in Japan was 37 million in 2009, an increase of 3.1 percent on the previous year, according to the Ministry of Health, Labor and Welfare.

Pension fund payouts, which grew 2.8 percent from the previous year, totaled 50.26 trillion yen in the year ended March 2010, according to the health ministry. Of that, GPIF paid 3.76 trillion yen, or 7.5 percent, according to Yoshihiro Yumiba, a director at the health ministry’s pension bureau.

Japanese pension funds posted the lowest annualized growth among 12 countries between 2004 and 2009, at 2 percent in U.S. dollar terms and unchanged in yen terms, according to the survey. Brazil reported the highest growth, 24 percent in dollars, the report showed.

In terms of growth by assets among the top-20 funds in the world between 2004 and 2009, Japan also came in last, increasing 3.5 percent, compared with China in first place at 40.6 percent.

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