Japan's more than $1 trillion Government Pension Investment Fund lowered its asset allocation target for Japanese government bonds by seven percentage points on Friday while lifting its targets for foreign stocks, foreign bonds and domestic stocks.
The changes brought the GPIF's target allocations roughly in line with the fund's actual allocations on Dec. 31.
In a telephone interview, Tokihiko Shimizu, director general of the GPIF's research department, said the fund's previous assumptions about the “efficient frontier,” set three years ago, had been colored by the global financial crisis. The new targets on Friday reflect the investment team's latest review, which concluded that the risks surrounding domestic bond investments were somewhat higher while the risks of investments in domestic and foreign equities, as well as foreign bonds, had receded.
The GPIF has lowered its target allocation for domestic bonds to 60% from 67%, with leeway for actual allocations to range by eight percentage points on either side of that target. The fund's actual allocation on Dec. 31 was 60%.
The fund's target for domestic stocks rose one percentage point to 12%, with a six-percentage-point range before rebalancing. The fund's actual allocation on Dec. 31 was 13%.
Meanwhile, the GPIF's targets for foreign stocks and foreign bonds rose by three percentage points apiece to 12% and 11% respectively, with a five-percentage-point range. The fund's actual allocations on Dec. 31 for foreign stocks and bonds were 13% and 10%, respectively.
The GPIF left a 5% target allocation to cash unchanged.
A one-percentage-point change in allocations for the fund, which had assets of ¥111.93 trillion ($1.16 trillion) on Dec. 31, 2012, the close of its latest quarterly report, would amount to roughly $12 billion in potential flows, suggesting a seven point change could put more than $80 billion in play.
