Photographer: Akio Kon/Bloomberg

Japan's $1.1 Trillion Pension Fund Boosts Infrastructure Section

  • GPIF limit for alternative assets around 7 trillion yen
  • Fund teamed up with Ontario pension fund for some investments

Japan’s 135 trillion yen ($1.1 trillion) Government Pension Investment Fund is building up its alternative investment department after raising bets on infrastructure projects more than 10-fold to secure higher returns than low-yielding bonds.

The world’s largest retiree fund has boosted staff in its alternative investment section, formed last year, to five people, Shinichirou Mori, director of the fund’s planning department, said Dec. 11 in Tokyo. The fund is still trying to hire more people for the department, according to its website.

The fund’s investments in infrastructure rose to about 70 billion yen at the end of September, based on figures supplied by GPIF, up from 5.5 billion yen at the end of March. The decision to invest in infrastructure is drawing interest abroad, with India’s railway minister urging the nation to invest in rail projects there.

“Infrastructure investments can provide stable long-term revenue and so we anticipate it will help steady pension finances,” Mori said in an e-mailed response to questions Dec. 4. “We haven’t set a number on how many people we will add to the department. If there are good people we will hire them.”

Aging Population

Japan’s giant pension manager is shifting to riskier assets to help increase returns as the number of retirees grows and Prime Minister Shinzo Abe’s government tries to spur inflation, which erodes the fixed returns offered by bonds.

Last month the fund posted its worst quarterly result since at least 2008, as a slump in equities hurt returns. GPIF lost 5.6 percent last quarter as China’s yuan devaluation and concern about the potential impact when the Federal Reserve Board raises U.S. interest rates roiled global equity markets.

About 53 percent of the fund’s assets under management were in bonds as of Sept. 30, according to a statement on its website. The retirement fund’s stock investments are largely passive, meaning returns typically track benchmark gauges. The fund held 0.05 percent of its assets in alternative assets at the time, it said.

Canadian Ties

GPIF teamed up in February 2014 with the Ontario Municipal Employees Retirement System and the Development Bank of Japan to jointly invest in infrastructure such as power generation, electricity transmission, gas pipelines and railways in developed countries. It may expand infrastructure investments to as much as 280 billion yen over the next five years as part of the agreement, it said in a statement at the time.

The alternative investment department also can invest in private equity and real estate, although it hasn’t yet, Mori said. The fund will invest as much as five percent of its portfolio -- 7 trillion yen as of September -- in alternative assets, it said last year. Mori declined to give details of its infrastructure investments.

This year’s infrastructure investments were made through the unit trust structure announced for the joint OMERS projects. The investment decisions are made by Nissay Asset Management Corp. according to the mandate decided by the GPIF. The GPIF team makes sure the details are in line with the investment mandate it outlined for the trust, Mori said. 

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