Japan’s stock rout in the quarter through March spurred the first loss for the world’s biggest pension fund in almost two years, just as it moves toward buying more equities.

The Government Pension Investment Fund lost 0.8 percent on its investments in the final three months of the fiscal year, trimming assets under management to ¥126.6 trillion ($1.2 trillion), GPIF said in a statement Friday.

The quarterly loss was the first since April-June 2012 and reflected a 7.1 percent drop in GPIF’s Japanese shares as the Topix posted the steepest slide among 24 developed markets. The equity measure then rebounded 6.9 percent through the end of last week.

The fund’s return of 8.6 percent in the year through March 31 was buoyed by an equity rally in the first three quarters, while local debt returned just 0.6 percent over the 12 months.

GPIF has been under increasing pressure to reduce domestic bonds in favor of riskier assets since a government panel last year urged an overhaul of its investment strategies.

“The question is what returns they aim for in the future,” said Kazuyuki Terao, chief investment officer at Allianz Global Investors Japan Co. “There’s risk in whatever they do, but when they consider the best combination of risk and return, a 60 percent domestic-debt target is too much.”

GPIF’s results illustrate both sides of the argument over whether the fund should own more stocks: The quarter ended March underscores the potential for short-term equity losses, while full-year gains would have been better if GPIF owned more shares instead of local debt.

For the full year, the fund’s Japanese shares returned 18 percent, while overseas equities performed the best among the asset classes with a 32 percent gain, the statement showed. Overseas bonds delivered a 15 percent return. The yen weakened 8.7 percent against the dollar during the period, while the Topix rose 16 percent.

GPIF “managed to secure high returns for a second fiscal year,” Takahiro Mitani, the fund’s president, wrote in the statement. GPIF aims to diversify its assets and streamline its organization “in line with a goal of securing long-term investment gains solely for the benefit of people in the pension program.”

The fund’s assets under management slid from the record ¥128.6 trillion reached at the end of last year. GPIF’s weighting in domestic bonds was little changed at 55 percent on March 31, while Japanese shares made up 16 percent of holdings, down from 17 percent in December. Foreign equities increased to 16 percent from 15 percent, while overseas debt, which includes infrastructure investment, was little changed at 11 percent.

The bond-heavy GPIF is expected to shift more money into local equities in coming months after Prime Minister Shinzo Abe ordered a faster review of its portfolio and included the overhaul in the nation’s growth strategies.

Supporters of the revamp argue that holding so many government bonds doesn’t make sense as Japan exits more than a decade of deflation, while others warn the fund shouldn’t be used as a tool to boost the stock market.

GPIF has started a serious review of its portfolio and is seeking advice from its investment committee on the overhaul, Shigehito Aoki, an official at the fund, said Friday. Aoki declined to comment on when it would be completed.

The fund has a 60 percent target for domestic debt and 12 percent for Japanese stocks. A survey in May of independent fund managers, strategists and economists found that they expect the fund to increase equities to 20 percent and reduce bonds to 40 percent.

The nation’s consumer prices excluding fresh food rose 3.4 percent in May from a year earlier after the consumption tax was raised April 1, the fastest pace in 32 years, a report showed June 27.

GPIF’s 8.6 percent investment return was its third-largest since the fund’s inception in 2001, according to Friday’s statement.

The California Public Employees’ Retirement System, the largest U.S. public pension, said in March that its assets returned 8.9 percent in the seven months through Jan. 31.

Canada’s Pension Plan Investment Board, with assets of 219.1 billion Canadian dollars ($206 billion), posted a gross investment return of 16.5 percent for the year ended March 31, according to its website.

Local bonds were GPIF’s only asset class that beat their benchmark over the year, the statement said.

The fund revamped its Japanese stock portfolio in April, adding new managers, the JPX-Nikkei Index 400 as a benchmark, and began using smart-beta strategies for the first time.

Most of the smart-beta investments planned under this review were completed before it was announced, Tokihiko Shimizu, an official at GPIF, said Friday. The fund advertised in April for bond managers, including for active investment in inflation-linked, high-yield and emerging-market debt outside Japan.

Among GPIF’s active local stock managers, Nomura Asset Management Co. oversaw the most money with ¥528 billion, according to the statement. Taiyo Pacific Partners LP, the so-called “friendly activist” hired by GPIF in April, oversaw ¥5.1 billion as of March 31.

Attention now turns to the fund’s portfolio revamp, which will take place in the fall, Yasuhiro Yonezawa, head of GPIF’s investment committee, told the Sankei Shimbun on Thursday. Plans to change the law governing GPIF to introduce a board of directors to replace the president system have been pushed back, with the bill not being submitted in the Diet session that ended in June.

Japan’s government will initially seek changes under the current legal structure, including revamping the pension fund’s portfolio and bringing in more investment professionals, before considering changes to the legislation, Deputy Chief Cabinet Secretary Hiroshige Seko said in an interview last month.

Seko, an aide to the prime minister, said the Abe administration was “absolutely not” trying to keep stock prices high by having GPIF buy shares.

“The issue is how to get a good return on the Japanese people’s roughly ¥130 trillion in precious resources,” he said. “We also want to get into a virtuous cycle by having GPIF invest to benefit the Japanese economy and gain returns as a result.”