Japan's GPIF to Allocate to Emerging Equities

(October 12, 2010) — Japan’s public pension fund, the world’s largest, will invest in emerging markets for the first time as it seeks to assume more risk, Reuters is reporting.

The Government Pension Investment Fund (GPIF), with assets at $1.4 trillion, bigger than India’s economy, is under heightened pressure to take on more risk as it faces mounting shortfalls and an aging population. According to the news service, it will use the MSCI main emerging stock index, and will select both active and passive managers.

The pension is traditionally a conservative investor with more than two-thirds of its assets in Japanese government bonds. As of June, about 9% of the GPIF’s total assets, or 10.6 trillion yen out of 116.8 trillion yen, were held in foreign equities.

The GPIF’s portfolio targets a 67% allocation to domestic bonds, 11% to domestic stocks, 9% to foreign stocks, 8% to foreign bonds and 5% to short-term assets.

In recent news, Takahiro Mitani, president of Japan’s GPIF, told the Wall Street Journal in an interview that while some say the GPIF should invest in high-risk and high-return products, the GPIF will continue taking a safe and effective approach based on a long-term view rather than a short-term one. “In 2008, when we saw the financial crisis after the collapse of Lehman, while we posted a negative result we were relatively better off than overseas pension funds thanks to our conservative, cautious stance,” said Mitani. We posted only single-digit [percentage] loss while others posted double-digit loss.”