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Japan’s Government Pension Investment Fund

With 1.25 trillion of assets, the Government Pension Investment Fund (GPIF) is the world’s biggest public sector investor. The GPIF manages and invests the reserve funds of the government pension plans entrusted by the Minister of Health, Labour and Welfare, in accordance with the provisions of the Employees’ Pension Insurance Act and the National Pension Act. Also, it shall contribute financial stability of both plans by remitting profits of investment to the Special Accounts for the Government Pension Plans[1]. It uses government employees’ pension funds in order to yield greater returns which will in turn provide better benefits on the pension plans provided to government retirees.

During the recent World Economic Forum in Davos, Prime Minister Shinzo Abe is now taking steps to overhaul the fund. In order to boost returns to future pensioners, the GPIF should reduce its reliance on bonds, heads into stocks and also invest in different asset classes including infrastructure and venture capital [2]. It is seen as diversifying the portfolio of the fund, of not just playing it safe with domestic bonds but also investing in stocks with higher returns that would improve the Japanese share indices and further improvement of the economy.

Majority of the investments focused on Japanese bonds, but with the current change in investment strategy, it is seen to increase its portfolio allocation to stocks and equities. With a fund twice as big as the Swiss economy and with the new guidelines, its equity level is predicted to rise to 20 per cent[3]. Moreover, the likelihood of the GPIF shifting towards equities can be a reason for investors to buy Japanese shares resulting for Mr Abe to further work on the reform. It is a shift that could improve the Nikkei and other Japanese share indices. With public pension funds being invested in stocks with greater returns, this reform can be seen as a way for the Japanese economy to recover from the stock market and gain further foreign investments.

However, the rate of returns will still depend on the fund’s investment performance and management according to Financial Times.

Considering the size of the Japanese market, its outright effect to investment yields cannot be guaranteed. The time it takes for the transition from domestic bonds to domestic stocks may have a different effect – investing into the market over a year would have a bigger impact than with a gradual time frame of three to five years.

Bien Janine Balocating

Sources:

[1] http://www.gpif.go.jp/en/about/

[2] The Economist. The new age of crony capitalism. March 15-21 2014.

[3] http://blogs.ft.com/the-world/2014/08/japans-gpif-implications-of-its-stocks-surge-strategy/

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Author: studentnovasbe

Master student in Nova Sbe

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