Japan’s GPIF dishes out foreign equity mandates

The $1.2 trillion state pension fund hires eight firms to manage overseas stocks, and is finalising domestic equity mandates. It comes after record losses in domestic bonds.
Japan’s GPIF dishes out foreign equity mandates

Japan’s $1.2 trillion Government Pension Investment Fund (GPIF) has awarded new active foreign equity mandates to eight fund management houses.

It comes as the state pension fund strives to broaden its exposure to international equities and fixed income, at the expense of domestic bonds. The GPIF recorded record domestic bond losses in its latest financial quarter to June of -¥945 billion ($9.5 billion).

Only the names of the foreign equity mandate winners and the external houses they entrust management to were disclosed by GPIF. No details on the size or investment focus of the mandates was included.

The winners were Amundi Japan; MFS Investment Management (Massachusetts Financial Services); Natixis Asset Management Japan (entrusted to Harris Associates Investment Trust); Nikko Asset Management Japan (Intech Investment Management); BNY Mellon Asset Management (Walter Scott & Partners); Mizuho Asset Management  (Wells Capital); Mitsubishi UFJ Trust Bank (Aberdeen Asset Management); and Mitsubishi UFJ Trust Bank (Baillie Gifford Overseas).

“We selected these asset management companies in light of their track records and strategies,” Tokihiko Shimizu, director-general of research at GPIF, tells AsianInvestor.

The GPIF is in the process of finalising its choice of external managers for domestic equity mandates, an announcement on which is not expected for three months.

Shimizu says this is a three-part process and forms part of the monthly deliberations for the fund’s investment committee. He declined to comment on the timing of selections.

Once domestic equity mandates are allocated, the pension fund is expected to turn its attention to issuing fresh mandates for international fixed income, AsianInvestor understands.

Further, the government is in the process of evaluating the financial status of its public pension schemes over the long term, with the aim of balancing liabilities and assets. This happens every five years.

The new valuations are expected to be disclosed early next year. GPIF will then need to align its strategic asset allocation to be consistent with the valuation assessment.

In its latest quarterly results, announced on the state pension fund’s website last Friday, GPIF revealed it achieved a net return of 1.85% in the first quarter of fiscal 2013 (April to June).

It compares with a 10.23% return for the whole of fiscal 2012, and is a vast improvement on its first quarter performance in fiscal 2012, which was -1.85%.

Overall, GPIF recorded an investment income of ¥2.21 trillion ($22.3 billion) for April to June this year. It saw its total AUM increase 0.45% to ¥121 trillion.

Driving the positive performance was 9.7% return for domestic equities, or income of ¥1.7 trillion. That was followed by a 6.14% return for international stocks (¥921 billion in gains) and 4.01% for international bonds (¥478 billion).

However, the counterweight negative dragging down its results was a -1.48% return in domestic bonds, or a loss of -¥945 billion.

Shimizu confirms that this was a record low for GPIF in terms of domestic bonds and attributable to the aggressive monetary policy of the Bank of Japan. During the period, the long-term interest rate rose from 0.56% at the end of March to 0.85% at end-June.

However, GPIF actually beat by 0.03% its domestic bond benchmark, which returned -1.51% over the fiscal quarter.

GPIF recently reviewed its medium-term strategic asset allocation, seeking to cut domestic bonds from 67% of its portfolio to 60%. At the same time it has sought to increase domestic equity exposure from 11% to 12%, international bonds from 8% to 11% and international stocks from 9% to 12%.

Shimizu has already told AsianInvestor of the possibility of investing in alternative assets for the first time, including private equity, as reported.

GPIF’s strategic asset allocation at the end of June stood at 59.87% for domestic bonds, 15.73% for domestic equities, 12.9% for international stocks, 10.03% for international bonds and 1.46% for short-term assets.

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