Japan's Government Pension Investment Fund, Tokyo, on Friday reported a 6.9% gain for its fiscal year ended March 31, even as rising trade tensions dented performance during the final quarter.
Norihiko Takahashi, GPIF's president, said in his introduction to the fund's latest annual report that a solid economic backdrop, bolstered by recent U.S. tax reform, fueled the pension fund's performance for the year by boosting stock prices around the globe.
Mr. Takahashi suggested the fund's gains would have been even stronger if uncertainties prompted by U.S. trade policies hadn't seen markets giving up some of the hefty advances posted over the first nine months of the year during the final quarter.
With stock prices in Japan, the U.S. and Europe retreating as the fiscal year ended, and the yen strengthening against the dollar, the GPIF reported a 3.49% decline for the quarter ended March 31, partially offsetting gains of 3.92%, 2.97% and 3.54% during the fiscal year's first three quarters. The pension fund ended its fiscal year with ¥156.4 trillion ($1.47 trillion) in assets.
Apart from changes in market valuations, the annual report showed the biggest changes in the fund's allocations for the fiscal year occurring on the fixed income side, with ¥3.74 trillion withdrawn from Japanese government bonds and an additional ¥3.56 trillion invested in foreign bonds.
Within foreign bonds, GPIF appeared to be increasing allocations to European paper during the year.
For example, the fund's Bloomberg Barclays Euro Aggregate Bond mandate for BNY Mellon Asset Management's Insight Investment Management affiliate ended the latest fiscal year at ¥536.9 billion, up from ¥150.7 billion the year before, while its Bloomberg Barclays Euro High Yield Bond mandate jumped to ¥163.9 billion from ¥44.8 billion.
Elsewhere, the fund allocated an addition ¥225 billion to foreign equities and another ¥21 billion to domestic equities.
Increased allocations to offshore bonds lifted that asset class's weight in GPIF's portfolio to 14.77% from 13.03% the year before and just shy of the fund's 15% target.
The reduction in Japanese bond holdings, meanwhile, left their weight at 27.5% of the portfolio, down from 31.68% at the close of the previous fiscal year and a full 7.5 percentage points below the target of 35%.
The fund's allocation to domestic equities stood at 25.14%, up from 23.28% the year before and roughly in line with the policy target of 25%. Foreign equities, meanwhile, stood at 23.88%, up from 23.12% the year before and just below their policy target of 25%.
GPIF reported an 8.7% cash weighting at the close of the fiscal year, at the high end of a range between 7% and 9% in recent years.
The report's annual listing of GPIF's external managers and their assets under management revealed only a handful of changes from the prior fiscal year.
Among them, Standish Mellon Asset Management, which GPIF listed as one of its active overseas bond managers with ¥255.7 billion managed against a Bloomberg Barclays Global Aggregate Bond benchmark as of March 31, 2017, wasn't included in the fund's lineup for the most recent fiscal year.
Similarly, Wells Capital Management, which actively managed ¥107.8 billion against an MSCI Kokusai index as of March 31, 2017, wasn't on the fund's list of active offshore equity managers for the latest year.
A BNY Mellon spokeswoman couldn't immediately be reached for comment. Wells Capital spokeswoman Sarah Kerr declined to comment.
The annual report also noted that the fund made its initial allocations to core infrastructure and real estate fund-of-funds strategies during the latest year, lifting the weight of alternatives — within either the domestic or offshore stock and bond categories — to 13 basis points, or just less than $2 billion.
While that remains a rounding error for the fund, and still a small increment of the 5-percentate-point ceiling for alternatives, those alternatives were up by roughly $450 million over the final three months of the fiscal year.
For the latest year, GPIF's fee payouts to external managers — at ¥48.7 billion — remained at low levels, roughly 3 basis points of total portfolio assets.
Even so, managers of offshore stocks and bonds appeared to do relatively well. Foreign bond managers, combined, garnered fees of $155.5 million, or 8 basis points of assets under management, while foreign stock managers were paid a combined $152.8 million, or 4 basis points of their AUM.
Managers of domestic stocks, meanwhile, took in $95.9 million, or 3 basis points of their AUM, while managers of domestic bonds got $36.2 million, 3 basis points.