Despite grappling with low yields in its home market for decades, the world's largest pension fund needs some help in figuring out how to deal with a potentially permanent low-return world.
The Government Pension Investment Fund, Tokyo, which manages $1.6 trillion in assets, has put out a request for information seeking explanations as to what has caused the global zero-interest rate environment to become entrenched.
The pension fund is itself one of the world's key buyers of bonds, and as the steward of Japan's pension system is well used to a world in which much of its portfolio sees low returns — GPIF kept well over half its assets in low-yielding Japanese bonds until as recently as 2014.
As part of a search for yield to support the nation's rapidly aging population, the GPIF this March raised its portfolio allocation of foreign bonds by 10 percentage points — just as global yields plunged to join Japan's almost perpetually low-returning debt.
The GPIF suggested that experts in Modern Monetary Theory might be called upon to explain the global phenomenon, and is also seeking help on how it should estimate its bond returns in such a world.
The fund also asked for thoughts on:
- If the link between the business cycle and interest rates was declining.
- If the low interest environment affects the expected return on equities.
- If technological progress and globalization is affecting business cycles.
- Ideas on how to estimate the rate of return for bonds both foreign and domestic in the post-pandemic era.
GPIF infrequently posts such requests for research, previously seeking advice on fund-of-fund managers for infrastructure in emerging markets or domestic real estate investing.
The fund adjusted its target for all four asset classes of domestic and foreign equities and debt in its once-every-five-years reallocation in March. That was just as the 10-year Treasury yield dropped below 1% for the first time in history. The portfolio change has boosted the amount of foreign bonds it holds to ¥40 trillion ($383 billion) at the end of September, the most recent period for which data is available, from ¥30.6 trillion a year earlier.
The GPIF said it may use the provided information in future operations and reviews. Those so inclined are asked to submit their suggestions by Jan. 21.
And the fund won't be paying. "No compensation will be provided for any information received," it said in a statement.