Japan's GPIF considers alternative investments

Should GPIF decide to proceed, it is likely that smaller Japanese pension funds would follow suit, opening up a new fundraising channel for GPs.

GPIF has JPY108.2 trillion yen ($1.38 trillion) under management and currently invests in four conventional asset classes: 11% to domestic equities, 67% to domestic bonds, 9% to foreign equities and 8% to foreign bonds. The remaining 5% is committed to short-term assets. It began investing in emerging markets earlier this year.

Takahiro Mitani, the pension fund's chairman, said in an interview with Reuters last week that GPIF had no option but to diversify its asset allocation. "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.

There are no plans to invest in hedge funds because they don't meet the fund's requirements for a regular and high level of disclosure.

GPIF's primary challenge is that fewer people are paying into public pension plans at a time when more people are retiring from work, which places increased pressure on returns. Japan's population is projected to fall by 30% to below 90 million by 2060; the proportion of those aged 65 or older will have almost doubled from 2010.

The country's overall debt burden, which stands at double the size of its $5 trillion economy, is also cause for concern, with both the IMF and OECD calling for action. The government has responded by increasing sales tax. Japan is able to cover 95% of its finance needs from domestic savers, but as the number of retirees per working age person rises, the system is likely to become strained.

Mitani added that the amount of cash required for pension payouts in the current financial year could fall by about JPY2.5 trillion if the government is able to issue bonds designed to fund pension payouts. Its initial projection was that JPY8.87 trillion would be required for payouts.

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• Topics
• LPs
• North Asia
• Japan
• LPs
• Government Pension Investment Fund (Japan)