Sat, Apr 14, 2012 - Page 11 News List

Largest pension fund to invest in emerging markets

Bloomberg

Japan’s public pension fund, the world’s largest, will start investing in emerging-market stocks as early as this quarter as it seeks to diversify assets and cover rising payouts.

The Government Pension Investment Fund, which oversees ¥108 trillion (US$1.3 trillion), has decided on the managers who will handle the investments and it is now in the process of setting up accounts in prospective markets, said Takahiro Mitani, president of the fund.

He declined to name the managers until investments are actually made or disclose the amount of the allocations.

“We expect to start investing in emerging-market stocks by the end of this quarter or the beginning of the next quarter,” Mitani, 63, said in an interview in Tokyo yesterday. “Because the markets are less liquid than the developed ones, we’ll likely begin with a small amount and then decide on whether to buy more depending on how it goes.”

The investments will be focused on markets included in the MSCI Emerging Markets Index, which tracks 21 countries, including Taiwan, Brazil, Russia, India, China, South Korea and South Africa, Mitani said.

The gauge has gained 13 percent this year compared with an 8.6 percent increase in the MSCI World Index of developed stocks.

The fund does not plan to begin investing in alternative assets, such as hedge funds and real estate, “any time soon,” Mitani said, citing an incident involving AIJ Investment Advisors Co where the Tokyo-based asset manager lost pension clients’ money.

“AIJ’s incident pushed the hurdle a bit higher for us to consider alternative investments,” Mitani said. “We can’t invest unless we know what exactly the investments are.”

The fund, historically one of the biggest buyers of Japanese debt, held ¥72.8 trillion in domestic bonds, or 67 percent of its assets, as of December last year, -according to the fund’s latest quarterly financial statement.

That compares with ¥12 trillion in Japanese stocks, or 11 percent, ¥9.1 trillion, or 8.4 percent, in foreign bonds and ¥10.9 trillion, or 10 percent, in overseas stocks, the report shows.

The fund had a 0.58 percent return in the three months ended Dec. 31 last year.

The fund needs to raise about ¥8.87 trillion for payments this fiscal year, Mitani said, adding that it plans to sell assets, without elaborating.

Payments are increasing as the first of Japan’s baby boomers are set to turn 65 this year, becoming eligible for pensions.

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