TOKYO: Japan’s public pension fund, the world’s largest, recorded investment gains of $ 56 billion in October-December, its second best quarter on record, on the back of strong domestic equities, while the yen’s fall helped boost the performance of foreign assets.
The fund’s performance was helped largely by Prime Minister Shinzo Abe’s aggressive reflationary fiscal and monetary policies, which triggered the yen’s fall and lifted the broad Topix stock index by almost 17 percent over the three month period.
Global asset managers and market dealers closely watch the performance of the Government Pension Investment Fund (GPIF) due to the size of its portfolio — which is larger than the economy of Mexico, the world’s 14th biggest.
The GPIF recorded an investment gain of 5.14 trillion yen ($ 55.71 billion) in October-December, significantly higher than the previous quarter’s 484 billion yen gain. That translates into a positive return of 4.83 percent, versus 0.49 percent in July-September.
The fund, which started operations in 2001, had its best quarter a year ago, in January-March 2012, posting an investment gain of 5.48 trillion yen and a positive return of 5.11 percent.
The fund’s total asset size rose 4 percent to 111.9 trillion yen ($ 1.21 trillion) as of end-December from 107.7 trillion yen in September.
The biggest investment gains were in domestic stocks — up 2.07 trillion yen for the fund’s best quarter since January-March last year. The performance in Japanese stocks translates into a positive return of 16.71 percent. The benchmark Topix index, including dividends, rose 16.73 percent.
The GPIF had a positive return of 13.62 percent from foreign bonds and 13.78 percent from foreign equities.
However, returns on domestic bonds slipped 0.06 percent — an investment loss of 35.4 billion yen — for the first quarter since January-March 2011.
The sharp recovery in domestic shares and the weaker yen may give the GPIF a headache as it may need to reallocate its huge portfolio — its weighting of foreign equities is near the allowed ceiling, while its weighting of domestic bonds has slipped to near its minimum limit.
By end-December, the fund was about 60 percent invested in domestic bonds, approaching the minimum 59 percent limit. It had about 13 percent in foreign equities, close to its allocation ceiling of 14 percent.
The GPIF allocates its investments based on its model core portfolio with a 67 percent allocation to domestic bonds, 11 percent to domestic stocks, 9 percent to foreign stocks and 8 percent to foreign bonds. The allocation range for domestic bonds is 59-75 percent, and 4-14 percent for foreign equities.
Chairman Takahiro Mitani told Reuters last month the fund will review its long-term investment target and portfolio allocation model around April, adding that review should include a discussion on the investment strategy towards Japanese government bonds.
Yields on 10-year JGBs were around decade lows of 0.640 percent yesterday.
Last year, a report by Japan’s Board of Audit, requested by the upper house of the national assembly, called for the GPIF to consider reviewing its target and allocations.
Japan’s pension fund records investment gains of $ 56 bn
