GPIF’s more modest Q1 seen as a welcome return to normality

After a stellar 2020, Japan's pensions titan GPIF is returning more down-to-earth numbers. For analysts it allows the dust to settle to see if its long-term strategies are really working.
GPIF’s more modest Q1 seen as a welcome return to normality

Japan’s Government Pension Investment Fund recent first quarter results are being seen by analysts as a welcome return to normality - one year after a stellar performance - and a chance to see more clearly whether the fund's long-term strategies are paying off.

GPIF posted a 2.68% quarterly return from April to June, lower than the average 5.8% quarterly return in the last financial year ended March, dragged down by losses in the domestic equity market.

Prior to this, GPIF posted a recording-breaking 25% return in the 12 months ended March fueled by the global stock rally. However, the following quarter results, released on Aug 6, showed a 0.25% loss on the back of domestic equities. Foreign equities were its best performers gaining 8.62%.

In its bond portfolio, foreign bonds generated returns of 1.87%, while Japanese bonds contributed 0.47%.

Source: GPIF (Click for full view)

By comparison over the same period, Alaska Permanent Fund Corporation posted a 5.47% return, including a 6.47% public equity gain and 2.27% return in fixed income.

On a positive note, the world’s largest pension fund recorded growth for the fifth consecutive quarter since April last year, pushing its cumulative returns since 2001 over the 100 trillion yen ($903 billion) mark for the first time.

Performance in each asset class beat benchmarks, driving total assets under management to 191.6 trillion yen ($1.73 trillion) as of the end of June.

Gary Smith,
Sovereign Focus


“I don’t think we can compare the first quarter to the FY2020 in any sensible way. It was just too remarkable,” said Gary Smith, managing director with Sovereign Focus, adding that GPIF was simply settling back to normal returns.

He said the results are a chance to see whether asset allocation changes will pay off in the long run.

Since April last year, GPIF changed its asset allocation strategy, moving 10% of assets from Japanese bonds to foreign bonds, and breaking the portfolio evenly into four segments covering domestic and foreign bonds and equities.

It also lowered US government bonds and bills to 35% of its foreign bond positions in the 12 months ended March, from 47% previously, according to Bloomberg.


“GPIF is probably more bearish on the US than other funds right now. Whether that strategy will pay off in the long term is yet to be seen,” said Diego López, managing director of Global SWF.

Diego López, 
Global SWF

“GPIF's allocation is unique in the sense that alternative asset classes still represent a very tiny portion of the portfolio. However, the five-year strategy does not show any willingness to change the weight of bonds and stocks for now,” he added.


The Japanese pension fund only has 0.76% of alternative assets in the $1.73 trillion portfolio, with a cap of 5% by 2024. However, it doesn’t regard the commitment amount as a target, a spokesperson of GPIF told AsianInvestor.

Alternative assets are seen as effective vehicles to generate alpha during a recession. Alaska PFC gained over 5% in alternative assets from April to June.


In the last 12 months ended March, Japanese equities were second to foreign equities, generating an average 9.1% return each quarter.

“In Japan, the domestic stock market fell slightly amid continued caution about the re-expansion of the coronavirus infection. The yen also depreciated against the dollar and the euro,” GPIF President Masataka Miyazono wrote in his comments regarding the first-quarter result.

Noriko Kuroki,
JP Morgan

From April to June, TOPIX slipped 0.33%, and Nikkei 225 went down 2%, but GPIF still outperformed with losses of just 0.25%.

The market, meanwhile, expects negativity in the Japanese equity market to ease in the second half.

“Looking forward, while COVID-19 has continued to weigh on economic activities, corporate earnings are visibly recovering in Japan,” said Noriko Kuroki, investment specialist for emerging markets and Asia-Pacific equities at J.P. Morgan Asset Management.


“The trends [of digitalization and automation] provide many interesting investment opportunities for bottom-up investors to benefit from the structural changes taking place in the country,” she told AsianInvestor.

Ahead of Japan’s general election later this year, the political situation is likely to remain stable as there is no credible opposition to the ruling Liberal Democratic Party, she added.

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