Japan’s Government Pension Investment Fund, Tokyo, will start investing in emerging markets stocks by the end of the year as the 114 trillion yen ($1.5 trillion) fund diversifies assets to maintain stable returns.
The pension fund, known as GPIF, is in the final stage of deciding the managers that will handle the investments, said Takahiro Mitani, president of the fund. The investments will be focused on markets included in the MSCI Emerging Markets index, he said.
“It looks like a good time to start investing in emerging markets,” said Mr. Mitani in an interview in Tokyo on Tuesday. “Prospects for growth still remain strong for emerging markets relative to the developed countries, which means expected returns will be higher.”
GPIF will probably remain a net seller in the fiscal year starting April 2012 to cover pension payments, Mr. Mitani said. The fund will sell fewer Japanese bonds this fiscal year from its portfolio than it sold last year as bonds reach maturity, he said. It sold 4.7 trillion yen worth of bonds in the fiscal year ended March 31, according to GPIF.
Under a five-year investment plan set up in March 2010, GPIF will allocate about two-thirds of its assets to domestic bonds, 11% to Japanese stocks, 8% to foreign bonds, 9% to overseas equities and 5% to short-term assets.
The March 11 earthquake and ensuing tsunami that led to a nuclear crisis in Japan hasn’t affected its allocations, Mr. Mitani said.
“There is no doubt that the disaster affected Japan’s economy,” Mr. Mitani said. “But from a long-term investment plan perspective, it didn’t have any significant impact for us.”
GPIF lost 0.25%, or 299 billion yen, in the year ended March 31, as investments in Japanese equities and foreign bonds fell in value, the fund said in July. For the three months ended June 30, the fund returned 0.2%, or 240 billion yen, as investments in bonds helped offset losses in equities, the fund said in August.
GPIF has commissioned a study on alternative assets, such as hedge funds, real estate and private equity, as it seeks investments that will not be correlated to the fund’s traditional holdings of bonds and equities, Mr. Mitani said. “Some say that other pension funds are investing in alternatives, but given the size of our fund, we have to be careful in making any decisions as the impact will be rather significant,” he said.