Japanese pension funds must diversify - panel
Japan's public pension funds - which collectively manage more than JPY200 trillion ($2 trillion) in assets - should diversify into alternative assets, including private equity, and have greater independence to do so, according to an expert panel.
The recommendations were part of a final report submitted by a government-appointed advisory panel charged with reviewing the funds' investment strategies, risk management and measures to increase returns from long-term investments.
The so-called "Panel for Sophisticating the Management of Public/Quasi-public Funds" was formed in December last year as part of a series of bold policy changes brought in by Prime Minister Shinzo Abe in a bid to restore growth to the nation's economy.
The report recommends that the pension funds - the largest of which is the JPY120.5 trillion Government Pension Investment Fund (GPIF) - should review domestic bond holdings and consider investing more in overseas assets. They should also look to diversify into private equity, venture capital, real estate investment trusts, infrastructure and commodities, where returns may be higher than on local sovereign bonds.
It also outlined a proposed overhaul of the governance structure of the funds with the investment committee - currently part of the administrative arm of the funds - reporting directly to a board of directors, independent of the CEO.
Among the other pension funds impacted by the review are the JPY7.8 trillion Federation of National Public Service Personnel Mutual Aid Association (KKR), the Pension Fund Association for Local Government Officials (Chikyoren), and the JPY3.6 trillion Promotion and Mutual Aid Association for Private Schools of Japan (Shigaku Kyosai).
Japan's pension funds have long been under pressure to perform in order to meet liabilities among one of world's oldest populations.
GPIF - which has previously been singled out for its lackluster performance - currently has a portfolio consisting of 60% domestic bonds, 12% domestic equities, 11% foreign bonds, 12% foreign equities and 5% short-term financial assets. It returned 10.2% in 2012 financial year, compared to 2.3% and -0.3% in two years previous.
The findings of the report will now go back the Abe's cabinet, which will decide on which recommendations to back and how to implement them.
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