World’s biggest pension fund adds $42bn as stocks gain

Tokyo / Bloomberg

The world’s biggest pension fund posted its best quarterly gain in a year as a rebound in stocks helped add $42 billion to the value of Japanese asset manager’s investments.
The 139.8 trillion yen ($1.2 trillion) Government Pension Investment Fund (GPIF) delivered a 3.6 percent return in the three months ended December as its holdings rose by 4.7 trillion yen, according to documents released Tuesday in Tokyo. That’s the biggest increase since the same period of 2014. The fund gained 3 trillion yen on Japanese stocks and 1.6 trillion yen on overseas equities, while foreign bonds were the only asset class to decline.
The results provide some respite for Prime Minister Shinzo Abe, who oversaw the fund’s doubling of its allocation to stocks, after GPIF had its worst loss in comparable data starting from April 2008 in the previous three months. They came as Japanese and global equities rebounded at the end of last year from a slump following China’s shock currency devaluation. Still, the gains will probably prove fleeting as share markets resumed their downturn in 2016, an election year in Tokyo.
“The return from Japanese stocks was a little bigger than expected. They must have been adding to holdings,” said Shingo Ide, chief equity strategist at NLI Research Institute in Tokyo. Still, “Japan’s investing environment is getting worse. GPIF is quickly blamed for losses and they might find it hard to take risk.”
GPIF held 38 percent of
assets in Japanese debt as of
December 31 and 23 percent in the nation’s equities, according to the statement. The fund had 14 percent of holdings in foreign bonds and 23 percent in overseas stocks. Alternative investments made up 0.04 percent. GPIF targets 25 percent each for shares at home and abroad, 35 percent for local bonds and 15 percent for overseas debt.
Most of GPIF’s equity holdings are passive, which means performance tends to track benchmark gauges. The Topix index of Japanese stocks had a total return of 9.8 percent in the quarter ended December, including reinvested dividends, while GPIF posted a 9.9 percent gain on local shares. The Topix has fallen 16 percent this year, and the yen has risen 6.3 percent against the dollar. A stronger yen erodes the value of the fund’s overseas investments when repatriated.
GPIF’s 0.8 percent gain on Japanese debt in the quarter ended December compares with a 1 percent advance on a Bloomberg gauge of the nation’s sovereign bonds during the period. The fund’s foreign debt investments lost 1.1 percent in the three months.

Opposition Criticism
The fund and its overseers have already faced criticism in parliament about performance in 2016. GPIF probably lost 4 trillion yen in the first week of the year, opposition lawmaker Kazunori Yamanoi said in January, adding his office had been receiving calls from worried pensioners after Japanese shares posted the worst start to a year on record. Abe said GPIF has a long-term investment perspective and it’s pointless to focus on short-term results.
“GPIF’s performance is perhaps the one issue that could really turn Abenomics into a liability for Abe,” Tobias Harris, a political risk analyst with Teneo Intelligence, said before the results were announced. “Obviously, the next quarter’s returns will be more important than the current returns, but this round will be something of a test run for opposition parties.”
GPIF is heading for losses at the start of 2016, Hiroyuki Mitsuishi, a councilor at the fund, said at a press conference in Tokyo on Tuesday. GPIF is managed for the long term and pensions won’t be impacted, he said, while noting that the fund has returned 3.1 percent annually since its inception. Performance is more volatile with the current asset mix, but the risk of not meeting pension payments has receded, he said.
In the previous quarter ended September, GPIF’s holdings declined by 7.9 trillion yen, the first drop since the fund boosted its allocation to stocks and reduced domestic debt in October 2014. Fund executives have argued that holding more shares and foreign assets is a better approach as Abe seeks to spur inflation that would erode the purchasing power of bonds.