GPIF asset allocation: so far so good, what next?

The Government Pension Investment Fund has published both its investment results for the first quarter of the 2017-18 financial year, showing a 3.54% gain in the term, and the full version of its 2016-17 annual report. 

The small shifts in the Fund’s asset allocation during the three months to 30 June resulted from price movements in securities and foreign exchange markets which, in turn, nudged the proportions of the portfolio for which each accounts,  rather from than any alterations to GPIF’s policy which was last reset in October 2014.

The impact of that change on the roster of asset management firms holding Fund mandates can be clearly seen from the first two tables under ‘The Giants’ tab atop this page:  “GPIF investments by asset type & managers 31 March 2013-16” which has just been joined by “GPIF investments  by asset type & managers 31 March 2017”.

As the table alongside shows some of the portfolio realignment came from the steady shrinkage in holdings of FILP bonds which was introduced as part of the 2002 arrangement under which Nenpuku became GPIF and got much more money to manage.  As FILP debt matured the proceeds were allocated to other areas of the portfolio.

With returns improving — and domestic bond holdings now down to the 30% conventional wisdom says a pension fund should hold to meet benefits obligations — the re-allocation exercise has produced measurable benefits and set the scene for what could be bolder changes in future.

The Fund has been seeking information from asset managers about their capabilities in new strategies and seems set to implement some of these as its domestic equities and other mandates expire over the next two years.

More adventurous choices of benchmark could, for example, help it capture some of the gains in local small caps, which have recently been attracting attention, as could a slight shift into ‘alternatives’

In making its future manager selections GPIF will no doubt look at the performance firms have achieved for it in the past.

This is set out beginning on page 78 of the 100-page Japanese-language version of its annual report but is not included in the 40-page English-language version. Neither is the list showing which firms manage what asset types but that now appears in translation under “The Giants’ tab above.

Missing in either language are:

  • An explanation of why GPIF’s assets at the close of the 2016/17 financial year are greater than the sum of those at the start plus its reported rate of return,
  • Any mention of its liabilities over years to come, and
  • Figures for the maturities of its holdings of Japan Government Bonds

Until the close of the 2014/5 year, the Ministry of Health, Labor & Welfare made annual drawdowns from GPIF’s trove to meet its bills for the payment two types of pension.

This now seems to have gone into reverse with more of what is collected from the public to pay benefits due under the national basic pension and Employee Pension Insurance being invested by GPIF and government paying more of the former directly from taxation.

Neither GPIF nor the Ministry has produced credible figures showing the track on which pension obligations will rise or fall in coming years.

During the heated debate on its future in 2014 the Fund said that in about 10 years time (see graph along side also archive November 2014 Investing pensions: Plus ça change, plus c’est la même chose) it would enter a period in which contributions outweighed benefits before the position reversed itself some years later to what has become the norm. But it  produced no evidence for this assertion which the demographic data do not support.

Figures for the maturities of its holdings of Japan Government Bonds would help asset managers trying to understand GPIF how much is likely to reallocate to other investment in each year.

© 2017 Japan Pensions Industry Database/Jo McBride. Reporting on, and analysis of, the secretive business of Japanese institutional investment takes big commitments of money and time. This blog is one of the products of such commitment. It may nonetheless be reproduced or used as a source without charge so long as (but only so long as) the use is credited to and a link provided to the original text on that site.

This blog would not exist without the help and humour of Diane Stormont, 1959-2012

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