Japan's Internal Minister Seeks Higher Returns by World’s Largest Public Fund

After the GPIF's rate of return on its investments fell to 10.3%, a record loss of 9.7 trillion yen ($108 billion), Japan’s internal minister calls for a review and more aggressive investment.

(January 25, 2010) — Japan’s government minister called for review of the $1.36 trillion public pension fund, the world’s largest, to seek higher returns, following a record loss of 9.7 trillion yen ($108 billion), in the financial year that ended March 2009.

Kazuhiro Haraguchi, internal affairs minister, said the Government Pension Investment Fund (GPIF) should generate greater returns than it has earned the last few years. He also expressed concern about having a single body managing such a massive fund, with one authority, the GPIF president, giving final approval regarding the fund’s asset allocation. “We need to verify whether it is appropriate for only one organization to manage such a huge fund of more than 120 trillion yen,” Haraguchi said, according to Reuters.

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Yet, the fund has proudly claimed that its conservative strategy helped limit its losses in 2009 compared to foreign pension funds, and Health Minister Akira Nagatsuma, who supervises the fund, affirmed it should maintain its conservative investments.

The GPIF currently holds 67% of its assets in Japanese government bonds. Eleven percent of the public fund’s portfolio is in domestic stocks, 9% is in foreign stocks, and 8% is in foreign bonds, Reuters reported. Starting in April, the GPIF is scheduled to manage its funds under a new investment target.

With about $122 trillion in assets, the Japanese fund is bigger than the 2008 GDPs of Australia, India and Mexico. It’s nearly seven times bigger than California Public Employees’ Retirement System (CalPERS), America’s largest pension fund with about $200 billion in market assets.

(January 22, 2010) – In an effort to remain a role model for socially responsible investment, Norway has blocked 17 tobacco companies from its sovereign wealth fund, Europe’s biggest equity investor.

Since introducing ethical guidelines in 2003, Norway has aimed to make its sovereign wealth fund an archetype for socially responsible investing. “It is important that the ethical guidelines reflect at all times what can be considered to be commonly held values of the owners of the fund,” said Sigbjorn Johnsen, the Financial Times reported.

The $456 billion fund blacklisted Philip Morris, British American Tobacco, Imperial Tobacco, Altria, Reynolds American and Japan Tobacco, among other tobacco companies, after the Norwegian finance ministry ruled that the firms violated the fund’s ethical guidelines.

Additional companies on the fund’s blacklist, which now total about 67 stocks, include Honeywell and Northrop Grumman for their involvement with making nuclear weapons, as well as Lockheed Martin and Raytheon for production of cluster munitions, according to the FT.

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Norway’s Government Pension Fund, which holds 1% of the world’s equities, is the world’s second-largest sovereign wealth fund following that of the United Arab Emirates. The fund is currently in the midst of debates and evaluation on its approach to active management.

To contact the <em>aiCIO</em> editor of this story: Paula Vasan at <a href='mailto:pvasan@assetinternational.com'>pvasan@assetinternational.com</a>; 646-308-2742