Asset AllocationAugust 11, 2021

Domestic Equities Weigh Down Japan’s Pension Giant

GPIF’s $1.7 trillion portfolio cools off to start fiscal 2021 after a historic 2020.

Reported by Michael Katz

The red-hot investment portfolio of Japan’s Government Pension Investment Fund (GPIF), the world’s largest pension fund, cooled off to start the fiscal year after returning a record 25.15% for fiscal year 2020.

The $1.7 trillion pension giant reported a 2.68% investment return, or an approximately $45.1 billion gain, for the first quarter of fiscal 2021. That is still a healthy quarterly gain, but it’s less than half the 5.65% the portfolio returned the previous quarter, and less than one-third of the blistering 8.29% it returned during the year-ago quarter. The performance is also below its quarterly rate of return for the first quarter over the past 20 years, which is 3.70% annualized.

Most of the fund’s asset classes continued their strong 2020 performances to start off the new fiscal year, with the notable exception of domestic equities, which hit the brakes in the first quarter.

After returning 9.26% during the fourth quarter of fiscal 2020, and 41.55% for the year, domestic equities declined 0.25% in the first quarter of fiscal 2021, but were still ahead of the benchmark, which lost 0.33% during the period. Fortunately for the fund, the drag on the portfolio caused by domestic equities was tempered somewhat by the fact that it recently reduced its domestic equities holdings by more than $27 billion due to rebalancing.

Foreign equities remained strong, although not at quite the same pace as the previous quarter, returning 8.62%, compared with 12.04% in the fourth quarter of 2020, and 20% during the same quarter last year. The category just beat the benchmark’s return of 8.55%.

Meanwhile, foreign bonds managed to improve in the first quarter, returning 1.87%, compared with 1.60% the previous quarter and 3.45% during the year-ago quarter. The category was also ahead of the benchmark, which returned 1.65%. And after being the lone declining asset class in 2020, domestic bonds gained 0.47% during the first quarter of 2021, following a loss of 0.44% during the previous quarter, and 0.45% a year earlier, but surpassing the benchmark’s 0.31% return.

The portfolio’s asset allocation as of the end of June is 25.41% in foreign equities, 25.39% in domestic bonds, 24.72% in foreign bonds, and 24.49% in domestic equities.