Japan’s Government Pension Investment Fund plans to boost investment in growth stocks to increase returns and may eventually allocate several trillion yen to such equities, the Nikkei newspaper said.
The state-run ¥121 trillion ($1.24 trillion) fund, the world’s biggest manager of retirement savings, will initially invest several billion yen in a new domestic index focused on returns on equity, governance and trading volume, Nikkei said Saturday without citing anyone.
Japan Exchange Group Inc. will this year announce criteria and about 500 stocks for the new index, which will be based on fundamentals, CEO Atsushi Saito said in Tokyo on July 30. That will be a departure from benchmarks like the Topix index, which includes all stocks listed on the Tokyo Stock Exchange’s first section, or the Nikkei 225 Stock Average.
Calls made Saturday to GPIF and the exchange were unanswered.
“It’s going to be like a membership of the country club and many companies will want to join a special club,” Curtis Freeze, the Tokyo-based chief investment officer at Prospect Co., which manages about $330 million in Japanese equities for overseas investors, said by phone Saturday. “It’s going to be a quality index, not just a quantity index, and that’s very important.”
GPIF is meanwhile hiring staff for its investment management and research units. The fund is looking for people aged 28 or younger to start in January, according to its website. It’s also advertising jobs in the planning, information systems, general business and accounting divisions, according to the statement.
The panel advising Japan’s leaders on public pensions said in a report last month that more “front-line” experts are required to diversify investments and adopt more sophisticated risk-management measures. The economists are reviewing GPIF’s asset allocations in a bid to boost returns.
The fund last hired staff in May, Masanori Shimazu, a spokesman for GPIF, said by phone Thursday. He declined to comment on whether the hiring was related to the advisory panel’s comments.
The GPIF advisory panel also said the fund must end its dependence on domestic bond holdings. Some advisers recommended allocating assets to real-estate trusts, infrastructure, private equity and commodities, according to its interim report on Sept. 26. GPIF posted its smallest gain in three quarters in the period ended in June because of record domestic bond losses.
The fund announced in June a cut to its target holding for domestic bonds to 60 percent from 67 percent, while allocations to foreign and domestic equities were hiked to 12 percent each, from 9 percent and 11 percent, respectively. The revised levels will stay in place until at least March 2015, GPIF chief Takahiro Mitani has said.
Eighty percent of GPIF’s domestic share portfolio is linked to the Topix, the Nikkei reported. Investing in the new equity index may boost returns while taking pension money away from companies with low capital efficiency, it said.
“As a manager and CEO of a company in Japan, your goal will be to beat that index,” Jesper Koll, head of Japan strategy at JPMorgan Chase & Co. in Tokyo, said Saturday by phone. “The Topix is a broad index and everybody competes there, but this new index is likely to be Japan’s Olympic team and team Japan will compete with a chance to win the global gold medal.”
The Topix has surged 35 percent this year, making Japanese equities the best performers among developed markets, as Prime Minister Shinzo Abe weakens the yen in a bid to revive the world’s third-largest economy and starts preparations for Tokyo to host the 2020 Olympics.