Japan’s GPIF posts $52bn loss in 2015

The $1.2 trn Japanese pension fund, which suffered its first annual loss in five years, after its equity-heavy asset allocation failed to deliver expected returns for 2015.

The world’s largest pension fund by assets under management, Government Pension Investment Fund of Japan, said it lost ¥5.3 trillion ($52 billion; €47 billion) in fiscal 2015, driven by domestic and foreign equities, which counts for some 44 percent of its portfolio.

GPIF posted a minus 3.81 percent annual return for the year ending 31 March, compared with a return of 2.14 percent a year before, it said in its annual report released on 29 July. It was the first loss for GPIF in five years, having previously posted a record 7.6 percent loss or approximately ¥9.3 trillion in the year ended March 2009.

GPIF is not the only state fund that posted lower returns in fiscal year 2015. Last week, Singapore’s GIC reported a 4 percent annualised rate of return in 2015, down from 4.9 percent the previous year, while China Investment Corporation posted a minus 2.96 percent net annual return, compared with 5.47 percent in 2014. Singapore state investment fund Temasek also said in June that its total shareholder return was minus 9 percent for 2015-16.

At a news conference on Friday GPIF president Norihiro Takahashi said he “humbly recognises” the financial loss in 2015 and also emphasised that the fund’s investments should be viewed from a long-term perspective.

Takahashi said the pension fund conducts a periodic review of its asset mix, “stays vigilant to recent changes in the market”, and will continue to take appropriate actions.

Last year, the fund invested around 51 percent in foreign and domestic bonds, 44 percent in foreign and overseas stocks, and 5 percent in short-duration assets including hedge funds and alternatives.

GPIF manages and invests some ¥134 trillion of reserve funds of the Employees’ Pension Insurance and the National Pension. It changed its policy governing its asset mix in October 2014, because it was under pressure to improve the returns it needs to finance Japan’s growing number of retirees who depend on payouts from the fund. Since 2010, GPIF has paid out more in benefits than it has received in contributions, a Reuters report said.

GPIF announced in 2014 it would diversify into private equity, real estate and infrastructure, allocating up to 5 percent of its overall portfolio to alternatives. The fund also nearly doubled its investments in domestic and foreign stocks to a combined 50 percent, up from 24 percent in 2013, and reduced its exposure to Japanese bonds from 60 percent to 35 percent.

Global fund managers as well as other sovereign wealth funds tend to keep a close eye on GPIF’s performance, as strong returns could encourage other Japanese pension funds to follow GPIF’s lead in allocating capital to alternative assets.

As at the end of March 2016, GPIF’s allocation to alternative assets stood at less than 1 percent, or roughly ¥56 billion of its overall portfolio. It invested ¥1.9 billion in private equity and ¥81.4 billion in infrastructure through co-investments with external institutional investors, it said in the report.

Early this year, GPIF appointed State Street Trust and Banking as one of its first custodians for its investments in alternative assets.

In November 2014, the pension fund hired private equity veteran Hiromichi Mizuno, a former partner at London-based private equity firm Coller Capital, as its first head of investments, and shortly after started the search for in-house investment managers for alternatives.

In the same year, the pension fund launched an infrastructure investment programme and announced a co-investment agreement with Canada’s Ontario Municipal Employees Retirement System and the Development Bank of Japan to invest in infrastructure assets such as power generation, electricity transmission, gas pipelines, and railways in developed countries.