The governmental ¥128 trillion retirement fund would be “stupid” to announce its new investment strategy before adjusting asset allocations, says Takatoshi Ito, a top adviser to the Abe administration on overhauling public pensions.
Publishing target weightings in advance would move markets, forcing the Government Pension Investment Fund to buy at highs and sell at lows, Ito said in an interview Tuesday in Tokyo.
The GPIF should shift holdings as much as possible now, he said, while noting that the fund doesn’t seem to be doing so. Deciding the new asset split is taking time partly due to a debate on whether to make it public before or after changing the portfolio, Ito said.
Investors are waiting for the bond-heavy fund to confirm it will cut Japanese debt to buy local stocks and overseas assets, after a government-picked panel led by Ito advised the GPIF to sell bonds in a report last year.
Yasuhiro Yonezawa, the chairman of GPIF’s investment committee, said in July that while it would be ideal to adjust the fund’s assets before the announcement, it must also avoid disrupting markets.
“Saying ‘we’re going to purchase as much as whatever percent’ before buying anything is a stupid idea,” Ito said. “It’s tantamount to not fulfilling their fiduciary responsibilities and not appropriately investing the money entrusted to them. It’s wrong, and I’m against it.”
Ito’s personal recommendation is for the GPIF to reduce its target for domestic bonds to about 35 percent from 60 percent, he said. Japanese and foreign stocks should be increased to about 25 percent each from 12 percent, while the level for overseas debt should be kept at 11 percent, Ito said.
The GPIF hasn’t given a concrete deadline for its asset review, with Yonezawa saying in July that the process will probably be completed in autumn.
It could come as late as December, the first month of Japan’s winter, as GPIF officials, members of its investment committee and the health ministry have different views on the best timing and approach, Ito said.
There will be no delays to the fund’s governance and portfolio overhauls, Teruyuki Katori, head of pensions at the welfare ministry, said Wednesday.
Discussions on the timing of the GPIF’s portfolio review will take into account Prime Minister Shinzo Abe’s views, Yasuhisa Shiozaki, the minister with responsibility for public pensions, said Friday. Abe said Sept. 24 he wants the fund to conduct its asset revisions as soon as possible.
The GPIF probably isn’t changing its allocations yet, according to Ito, a professor at the National Graduate Institute for Policy Studies who will soon take a position at Columbia University’s School of International and Public Affairs.
Once it starts moving, it will be obvious from government and Tokyo bourse data on trust-bank holdings, as it would be hard to hide shifts of trillions of yen, Ito said.
Trust banks, which manage pension money, bought a net ¥71.5 billion in Japanese stocks in the week through Oct. 3, according to Tokyo Stock Exchange figures. They were net sellers the previous week, offloading ¥22.3 billion, the data show. The GPIF may need to buy about ¥4 trillion of domestic shares as part of its allocation changes, according to Barclays PLC estimates last month.
If the GPIF plans to actively trade to reach the new asset split, waiting to start the process until “after it announces is ridiculous,” said Ayako Sera, a market strategist at Sumitomo Mitsui Trust Bank Ltd. “The market will front-run it, and our pension money will be invested at highs. It makes it pointless to entrust our savings to experts, and we should ask for it back so we can manage it ourselves. It makes those experts meaningless.”
Everyone involved in stock markets is laughing about the naivety of making the goals public before changing the portfolio, Nicholas Smith, a Japan strategist at CLSA Ltd., said Oct. 8.
Should the GPIF decide to take that approach, the fund must buy and sell over a long time period, according to Sera.
“If GPIF says it’s going to aim to reach its target allocations over a protracted period, and buys gradually every year, it can avoid being front-run,” Sera said. “It could let bonds mature and their share of the pie would decrease, and then the proportion of stocks and foreign assets would naturally rise. That would cause the least market impact.”