Japan’s massive public pension ‘studying alternatives’

The biggest public pension fund in the world, Japan’s Government Pension Investment Fund, with assets of about ¥120 trillion ($1.3 trillion; €962 billion), is considering ways to boost returns and has been “studying alternatives” as an investment strategy.

The pension is only in the early stages of figuring out how to boost returns, but public pressure on GPIF to increase returns has been ramped up in recent months. Internal Affairs Minister Kazuhiro Haraguchi urged a review of the fund’s performance after the institution lost $108 billion in the fiscal year that ended in March 2009, according to a Reuters article. Haraguchi didn’t specify how the pension should restructure.

Kotaro Mori, director of the pension and welfare department at the Japan External Trade Organisation, quoted in the March issue of Private Equity International magazine, said the pension is working with consultants on ways to boost returns, and is looking at alternative investments. (PEI subscribers may read further about GPIF’s strategy planning here).

Mori said he didn’t know how likely it is that GPIF will make room for alternatives in its portfolio, which is made up of about 70 percent in government bonds.

Another huge public institution, Norway’s $409 billion oil revenue-drive sovereign wealth fund, is considering allocating a portion of its assets to investments in private equity and infrastructure targeting environment-related opportunities.

As more traditional sources of capital for private equity like US pensions and endowments remain tight, recovering from the pounding they took in the market downturn, managers will increasingly have to find new pools of money to raise funds. 

The emergence of massive institutions like Norway or Japan could bode well for the future of the asset class.