Japan Panel to Craft Diversification Plan for Public Funds

A Japanese panel charged with management of public funds, including the world’s largest pool of retirement savings, said it discussed diversifying assets and may eventually buy real estate, commodity futures and other non-traditional investments.

The panel aims to complete its investment proposal by autumn, according to the Cabinet Office’s Motoyuki Yufu, who spoke after the group met today for the first time. Takatoshi Ito, a Tokyo University professor, chairs the panel, according to a statement distributed to reporters last week.

“It’s important for public funds to consider how to increase average returns and make their balance sheets resilient to market volatility over the long term,” Ito said today.

The Government Pension Investment Fund, which manages about 112 trillion yen ($1.1 trillion), said on June 7 that it’s cutting local bond holdings to buy more stocks and foreign securities. The fund will leave its asset allocations at the new levels until at least March 2015, GPIF President Takahiro Mitani said in an interview on June 21.

The Bank of Japan has pledged to double the monetary base by the end of next year while Prime Minister Shinzo Abe is promising public spending, tax reform and freer markets to reinvigorate Japan’s economy.

Mitani said in February that if Abe and the BOJ are successful then a 67 percent allocation for local bonds would look “harsh.” The fund cut its target holding for local government bonds to 60 percent from 67 percent, while the proportion of foreign and local shares will rise to 12 percent each, from 9 percent and 11 percent respectively. The allocations announced this month are close to what the fund already holds, he said.

Asset Shift

GPIF will release results and more details on its holdings in July, Mitani said last month.

The shift toward higher-yielding assets comes as the manager prepares to fund retirements in the world’s oldest population. The fund returned 3.3 percent in the three quarters though December, according to its latest results. Japanese bonds returned 1.48 percent, local stocks posted a 1.63 percent profit and foreign bonds and stocks returned 10.3 percent.

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

Asset Range

The Ministry of Health, Labor and Welfare, which oversees public pensions, demanded GPIF re-examine its portfolio structure after a recommendation by the Board of Audit Japan, an organization independent of the government in charge of auditing state accounts and public bodies.

GPIF should frequently review the efficiency and security of its asset allocation, the board said in October last year, according to a statement released with the reallocation announcement on June 7. The fund has a range of plus or minus 8 percent for its allocation to JGBs, 6 percent for local stocks, and 5 percent for foreign assets.

Other members of the government panel include JPMorgan Chase & Co. Chief Economist Masaaki Kanno, Daiwa Institute of Research Ltd.’s Mitsumaru Kumagai, Nomura Research Institute Ltd.’s Sadayuki Horie and Nippon Steel & Sumitomo Metal Corp. Managing Director Soichiro Sakuma.

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