Japan GPIF Said to Plan Investment in Infrastructure Abroad

Japan’s government retirement fund, the world’s largest, plans to invest in overseas infrastructure as it seeks to diversify its portfolio, according to two people with direct knowledge of the matter who asked not to be named because the discussions are private.

Japan’s Government Pension Investment Fund plans to make the investment in partnership with a foreign public pension fund, according to the people, who declined to disclose the nationality of the other party. The Development Bank of Japan will provide the GPIF with expertise in infrastructure enterprises, they said.

The 124 trillion yen ($1.2 trillion) pension fund is under pressure to boost returns beyond what it earns on Japanese government bonds that yield less than the pace of inflation, and GPIF President Takahiro Mitani said in an interview last week that a move into alternative assets could begin in about a year. A move into foreign infrastructure by GPIF would follow similar steps taken by private pensions including the program run by cosmetics-maker Shiseido Co.

“It is positive for the public pension fund to invest in meaningful projects for the country and to excel in its investment management skills,” said Hidenori Suezawa, a financial market and fiscal analyst at SMBC Nikko Securities Inc. in Tokyo. “Having said that, it will take a while until you implement risk-management and conditions to start making large investments, so it will probably not have a significant impact on the market for a while.”

JGB Reliance

GPIF spokesman Tomoyuki Hirao and DBJ spokesman Keisuke Kuma both declined to comment on the fund’s plans in telephone calls. A government panel on Japan’s financial and capital markets will provide details of the investment in a report to be published Dec. 13, the people said.

Takatoshi Ito, head of a separate advisory panel to the GPIF, said in an interview last week that the fund needs to cut local debt holdings now. Ito said GPIF should pare domestic bonds immediately to 52 percent of assets, its lower limit.

The fund owned 71.9 trillion yen of domestic bonds as of Sept. 30, with the investment making up 58 percent of its assets, according to its quarterly report. Japanese stocks accounted for 16 percent, followed by 13 percent in overseas equities, 10 percent in foreign bonds and 2.1 percent in short-term assets including cash.

The fund’s website states its portfolio allocations are scheduled to remain unchanged until March 31, 2015.

Aging Society

GPIF is under pressure to cover payouts as more Japanese baby boomers born in the wake of World War II turn 65 years old and become eligible for pensions. The government spent 52.2 trillion yen on pensions in the fiscal year ended March 31, 2012, a 1.1 trillion yen increase on the previous year, according to figures published by the health ministry.

Ito’s pension advisory panel has recommended GPIF and other public retirement funds should consider investing more in overseas assets, private equity, commodities, infrastructure and real-estate investment trusts. GPIF needs more independence from the Ministry of Health, Labor and Welfare, which currently oversees its investments, according to the panel’s report.

Thirty-four unlisted infrastructure funds reached final close this year, raising $29 billion between them, according to a November newsletter of London-based research firm Preqin Ltd. Sixty-three percent of infrastructure investors plan to allocate more capital to the asset class in the coming year than they did in the previous 12 months, and another 27 percent will allocate the same amount, it said.

Returns for Japan’s biggest pension funds were the lowest among 11 countries between 2007 and 2012 in local currency terms, according to a Towers Watson & Co. report that tracks the world’s 20 largest pools of retirement cash. Japanese funds shrank 1.2 percent during the period, compared with a 0.9 percent increase in the U.S. and 16.5 percent growth in China, according to the report.

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