* GPIF eyes investments in private equity, infrastructure,
* Public fund's portfolio $1.38 trln, bigger than Australian
* July-Sept investment performance improved from April-June
(Updates with quotes, details)
By Chikafumi Hodo and Junko Fujita
TOKYO, Oct 4 The head of Japan's Government
Pension Investment Fund (GPIF), the world's biggest public
pension fund, said it may venture into alternative assets, such
as infrastructure and private equity funds, as an ageing
population puts more stress on the pension system.
Looking around for new and better investment returns is
vital for the fund as for the past three years it has been
paying out more in benefits than it receives in contributions to
the national pension system.
GPIF Chairman Takahiro Mitani told Reuters in April that he
was concerned that fewer people were paying into public pension
plans at a time when more people were retiring from work.
Japan's population is expected to fall by 30 percent to
below 90 million by 2060, when the proportion of those aged 65
or older will have almost doubled from 2010, a government agency
survey showed in January. [ID:nL4E8CU4GZ]
"We are considering expanding our investment targets to
alternatives, which include infrastructure, real estate and
private equity," Mitani said in an interview on Thursday.
"The GPIF eventually will have to diversify its investment
targets to alternative investments. I don’t know if that's going
to happen when I'm in this post but there's a question whether
we should stick to these four asset classes forever," he said.
The fund, which has assets of 108.2 trillion yen ($1.38
trillion) - worth more than the Australian economy, the world's
13th largest - invests in four conventional asset classes,
allocating funds in line with its model portfolio. This gives a
weighting of 11 percent to Japanese stocks and 67 percent to
domestic bonds, with 9 percent to foreign stocks and 8 percent
to foreign bonds. It also has 5 percent invested in short-term
Mitani said the GPIF, which began investing in emerging
markets this year, was selecting advisers for its future
alternative investment strategies aimed at diversifying and
generating more returns for the long-term. [ID:nL3E8I20DZ]
GRAPHIC: GPIF by numbers r.reuters.com/vuw92t
Mitani has said Japan's debt burden, by far the largest
among developed nations at double the size of its $5 trillion
economy, could reach a critical point in 5-10 years. On
Thursday, he said those concerns over a bulging public debt may
have eased after the government secured political support to
raise the country's sales tax. [ID:nL4E8J98H6]
"I feel a crucial point has been delayed slightly as the
consumption tax law was passed," he said.
International organisations such as the International
Monetary Fund and the Organisation for Economic Co-operation and
Development have urged Japan to reduce its debt burden as a
Japan is able to cover about 95 percent of its finance needs
from domestic savers. The fear is that in the next decade its
swelling ranks of retirees will begin to run down their savings
to the point where Tokyo needs to start borrowing from overseas
lenders, who will demand a much bigger risk premium.
Mitani said it would take an extremely long time before
Japan can tighten its monetary policy under current economic
conditions, both at home and abroad.
The fund is aware of the risks involved when Japanese
government bonds (JGB) yields increase, which could ravage its
domestic bond portfolio, though in the long-run higher bond
yields would be positive for its investments, Mitani said.
Under its current model portfolio - set by the government
and reviewed every five years - the GPIF has to allocate two
thirds of its portfolio to JGBs. Yields on the key 10-year bond
JP10YTN=JBTC currently languish below 0.8 percent.
SHARE MARKET BOOST
Mitani said the amount of cash required for pension payouts
this financial year could fall by about 2.5 trillion yen ($31.8
billion) if the government can issue bonds designed to fund
pension payouts. The GPIF initially expected it would need 8.87
trillion yen for pension payouts in the year to next March.
The fund's quarterly investment performance may have
improved in July-September, from the previous quarter, he noted,
as world stock markets have picked up. The fund saw the value of
its portfolio slump by $26 billion in April-June - its first
fall in three quarters - as the yen strengthened JPY= and
equity markets fell. [ID:nL4E8JV31V] The fund has not set a
release date for its July-September results.
Mitani said the GPIF may invest in private equity firms,
though he is concerned there aren't enough successful private
equity deals in Japan. "I have not heard so many successful
stories about Japan’s private equity investments. I don’t know
why that is. It seems there are many successful investments made
by private equity overseas."
He said the GPIF would not allocate money to hedge funds as
investing in these doesn't fit with the fund's requirements for
regular and a high level of disclosure.
($1 = 78.5300 Japanese yen)
(Additional reporting by Takaya Yamaguchi; Editing by Kim
Coghill and Ian Geoghegan)
Keywords: JAPAN PUBLIC FUND/
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