GPIF Posts Quarterly Loss on Stocks, Paring Yearly Gain

Japan’s Government Pension Investment Fund, the world’s largest, posted a loss in the quarter ended March as stocks fell, paring its annual gain.

The fund lost 0.8 percent on its investments in the final three months of the fiscal year, trimming assets under management to 126.6 trillion yen ($1.2 trillion), GPIF said today in a statement. Its Japanese shares dropped 7.1 percent in the period. The fund’s annual return of 8.6 percent, buoyed by an equity rally in the first three quarters, compared with a record 10.2 percent the previous year.

GPIF has been under increasing pressure to cut domestic bonds in favor of riskier assets since a government panel last year urged an overhaul of its investment strategies. Its results illustrate both sides of the argument over whether the fund should own more stocks: the quarter to March underscores the potential for short-term equity losses, while full-year gains would have been better if GPIF owned more shares instead of local debt that delivered just 0.6 percent.

“The question is what returns they aim for in the future,” said Kazuyuki Terao, Tokyo-based chief investment officer at Allianz Global Investors Japan Co. “There’s risk in whatever they do, but when they consider the best combination of risk and return, a 60 percent domestic-debt target is too much.”

Stock Slump

Japan’s Topix index tumbled 7.6 percent in the January-March quarter, the worst performance among 24 developed markets tracked by Bloomberg. The equity gauge has rebounded 6.9 percent since then, amid investor optimism that GPIF would buy more local stocks.

For the full year, the fund’s Japanese shares returned 18 percent, while overseas equities performed the best among the asset classes with a 32 percent gain, the statement showed. Overseas bonds delivered a 15 percent return. The yen weakened 8.7 percent against the dollar during the period, while the Topix rose 16 percent.

GPIF “managed to secure high returns for a second fiscal year,” Takahiro Mitani, the fund’s president, wrote in the statement. GPIF aims to diversify its assets and streamline its organization “in line with a goal of securing long-term investment gains solely for the benefit of people in the pension program.”

The fund’s assets under management slid from the record 128.6 trillion yen reached at the end of last year. GPIF’s weighting in domestic bonds was little changed at 55 percent at March 31, while Japanese shares made up 16 percent of holdings, down from 17 percent in December. Foreign equities increased to 16 percent from 15 percent, while overseas debt, which includes infrastructure investment, was little changed at 11 percent.

Portfolio Review

The bond-heavy GPIF is expected to shift more money into local equities in coming months after Prime Minister Shinzo Abe ordered a faster review of its portfolio and included the overhaul in the nation’s growth strategies. Supporters of the revamp argue that holding so many government bonds doesn’t make sense as Japan exits more than a decade of deflation, while others warn the fund shouldn’t be used as a tool to boost the stock market.

GPIF has started a serious review of its portfolio and is seeking advice from its investment committee on the overhaul, Shigehito Aoki, an official at the fund, said at a briefing today. Aoki declined to comment on when it would be completed.

The fund has a 60 percent target for domestic debt and 12 percent for Japanese stocks. It may increase equities to 20 percent and reduce bonds to 40 percent, according to a Bloomberg News survey of 10 fund managers, strategists and economists in May. The nation’s consumer prices excluding fresh food rose 3.4 percent in May from a year earlier after an April sales-tax increase, the fastest pace in 32 years, a report showed June 27.


GPIF’s 8.6 percent investment return was its third-largest since the fund’s inception in 2001, according to today’s statement.

The California Public Employees’ Retirement System, the largest U.S. public pension, said in March that its assets returned 8.9 percent in the seven months through Jan. 31.

Canada’s Pension Plan Investment Board, with assets of C$219.1 billion ($206 billion), posted a gross investment return of 16.5 percent for the year ended March 31, according to its website.

Local bonds were GPIF’s only asset class that beat their benchmark over the year, today’s statement said.

Equity Revamp

The fund revamped its Japanese stock portfolio in April, adding new managers, the JPX Nikkei Index 400 as a benchmark, and using smart-beta strategies for the first time. Most of the smart-beta investments planned under this review were completed before it was announced, Tokihiko Shimizu, an official at GPIF, said in an interview today. The fund advertised the same month for bond managers, including for active investment in inflation-linked, high-yield and emerging-market debt outside Japan.

Among the fund’s active local stock managers, Nomura Asset Management Co. oversaw the most money with 528 billion yen, according to the statement. Taiyo Pacific Partners LP, the so-called “friendly activist” hired by GPIF in April, managed 5.1 billion yen as of March 31.

Attention now turns to the fund’s portfolio revamp, which will take place in autumn, Yasuhiro Yonezawa, head of GPIF’s investment committee, told the Sankei newspaper this week. Plans to change the law governing GPIF to introduce a board of directors to replace the president system have been pushed back, with the bill not being submitted in the Diet session that ended in June.

Governance Changes

Japan’s government will initially seek changes under the current legal structure, including revamping the pension fund’s portfolio and bringing in more investment professionals, before considering changes to the legislation, Deputy Chief Cabinet Secretary Hiroshige Seko said in an interview last week.

Seko, an aide to the premier, said the Abe administration was “absolutely not” trying to keep stock prices high by having GPIF buy shares.

“The issue is how to get a good return on the Japanese people’s roughly 130 trillion yen in precious resources,” he said. “We also want to get into a virtuous cycle by having GPIF invest to benefit the Japanese economy and gain returns as a result.”

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