Where the world’s biggest pension fund goes, half a trillion dollars is set to follow.
Three retirement managers for Japanese civil servants and private school teachers with ¥30.4 trillion ($296 billion) will mimic the asset allocation changes being planned by the ¥126.6 trillion Government Pension Investment Fund, according to Takatoshi Ito, an adviser to lawmakers on the overhaul.
Smaller funds with the equivalent of $205 billion are also poised to follow. Public pension managers must use the same investment guidelines by October 2015, according to information on the health ministry’s website.
The three larger funds will have to sell $64 billion in Japanese debt and buy $19 billion in local stocks to align their strategies, according to calculations based on the latest disclosures and a Bloomberg survey of GPIF’s expected holdings after its upcoming review.
The Topix rebounded 13 percent from an April 14 low through Monday as investors speculated the fund will buy more local equities.
“The impact on domestic stocks will be bigger than expected when you price in that the three funds will boost Japanese shareholdings in line with GPIF,” said Kazuhiko Ogata, chief Japan economist at Credit Agricole CIB. “Their local debt targets are higher than GPIF’s.”
GPIF will pare domestic bonds to 40 percent of holdings from a 60 percent target and boost local stocks to 20 percent from 12 percent, according to the median estimate from a Bloomberg survey in May. Matching that will spur its three peers to cut ¥6.6 trillion of local bonds and buy ¥2 trillion of equities, according to data as of March 31.
The domestic-bond target is currently 74 percent of assets at the Federation of National Public Service Personnel Mutual Aid Associations, 64 percent at the Pension Fund Association for Local Government Officials and 65 percent at the Promotion and Mutual Aid Corporation for Private Schools of Japan.
Their targets for local shares are 8 percent, 14 percent and 10 percent, respectively.
“There’s the impact on the three funds, which will be big, and then many people don’t fully understand how the system works for local civil servants,” said Kenji Shiomura, a senior strategist at Daiwa, referring to the number of smaller funds also affected. The changes will add more money to Japan’s stock market, he said.
GPIF’s size — about the same as Mexico’s economy — means its investment decisions have the potential to affect the value of Japanese equities, bonds and the yen. Politicians want the fund to plow more money into riskier assets, aiming to stimulate the economy and finance pensions in the world’s most rapidly aging society. Opponents accuse them of favoring the stock market and their own approval ratings over pension security.
GPIF’s asset review will probably be done this autumn, Yasuhiro Yonezawa, who heads its investment committee, said in July.
“That will be the de facto model for the other three,” Ito, a professor at the National Graduate Institute for Policy Studies who led a government advisory panel on GPIF reform, said in a June interview. “They have no choice but to follow.”
For GPIF itself, cutting domestic bonds to 40 percent of holdings will require selling ¥19.5 trillion of debt, and it will need to buy ¥4.5 trillion of stocks to meet a 20 percent target, calculations by Bloomberg show.
The ¥3.8 trillion fund for teachers at private schools will need to sell about ¥631 billion of bonds and double its domestic stock holdings to change its asset allocations to 40 percent and 20 percent, respectively, according to the data.
The ¥18.9 trillion fund for local civil servants face offloading ¥3.3 trillion of Japanese bonds and buying ¥739 billion of stocks, while for the ¥7.6 trillion Federation of National Public Service Personnel Mutual Aid Associations, the figures are ¥2.7 trillion and ¥914 billion.
The Pension Fund Association for Local Government Officials is still reviewing the portfolio to follow after it integrates with other public funds, according to spokesman Junpei Sakaba. The funds for private school teachers and national public servants declined to comment.
There are 64 other organizations that manage retirement savings for local civil servants, which had about ¥21 trillion in assets as of the end of March 2013, according to the Internal Affairs and Communications Ministry.
The figure for the fiscal year which ended on March 31 has yet to be compiled, according to the ministry, while it doesn’t keep track of asset weightings for those funds.
GPIF lost 0.8 percent on its investments in the final three months of the last fiscal year amid a rout for Japanese shares, paring its annual return to 8.6 percent.
“There will be an impact” as other funds follow GPIF, said Kazuyuki Terao, chief investment officer of Allianz Global Investors Japan Co., which manages about ¥70 billion. “They will be buying stocks when the market falls, giving it support.”
In a time of both misinformation and too much information, quality journalism is more crucial than ever.
By subscribing, you can help us get the story right.