Japan's ¥127.3 trillion ($1.14 trillion) Government Pension Investment Fund, Tokyo, on Friday announced its targeted allocations to equities would more than double to account for half of its investment portfolio, while domestic bonds would see their allocation target slashed to 35% from 60%.
A news release posted on the GPIF's website after the Tokyo stock market closed Friday described the new asset allocation targets as appropriate for an economy emerging from a prolonged period of deflation.
Under the new plan, target allocations for domestic equities and international equities will more than double to 25% each, from 12% each under the GPIF's previous asset allocation plan.
The pension fund's target for international bonds will likewise rise to 15% from 11% under the old plan.
The combined 30-percentage-point gain for those three asset segments will come at the expense of a 25-percentage-point drop in allocations to domestic bonds and the elimination of a prior 5% cash target.
The news release said a maximum 5% allocation to alternatives such as infrastructure, private equity and real estate — to be made in accordance with the development of a dedicated in-house team — would not be a separate category within the GPIF's new asset allocation. Instead, those investments will be classified as domestic bonds, domestic stocks, international bonds or international stocks “depending on their risk and return profiles.”
The pension fund also will look at multiasset investments. “For example, an external manager whose expertise widely covers both international and domestic stocks is considered. Multiasset investments will be reconciled and classified into either of four asset classes when we compute a percentage of each asset class in accordance with the policy asset mix,” the release said.
While the GPIF's new asset allocation framework is effective immediately, Friday's release said the transition to the new targets would be pursued with the goal of minimizing the GPIF's market impact. “Actual asset allocations may exceed the permissible ranges” set for deviation from the GPIF's allocation targets, the release said.
As of June 30, the GPIF had 53.3% in domestic bonds, 17.3% in domestic stocks, 16% in international stocks, 11.1% in international bonds and 2.3% in cash.
The GPIF investment advisory committee also adopted a resolution to reinforce governance at the fund. The move includes the appointment of a compliance officer.
The GPIF release also said it expects its payouts to retirees to exceed pension fund inflows for the coming 10 years, followed by a 15-year period when inflows should exceed payouts and then a prolonged period of net outflows. During periods of net outflows, the pension fund will necessarily have to focus more on the preservation of liquidity, the release said.
The GPIF also announced it switched its benchmark for international equities to the MSCI All-Country World index from the MSCI Kokusai benchmark of developed country equities.
