The world’s biggest pension fund, nearing the end of a plan to shift its asset mix and bulk up on equities, need not rush itself to reach new allocation targets, according to its president.
The ¥135 trillion Government Pension Investment Fund should be flexible in how it shifts to stocks from bonds, President Takahiro Mitani said.
Selling quickly just to reach goals set last year would be wrong, as the fund must also weigh market conditions and the pace of bond redemptions, the 66-year-old said.
In the biggest overhaul in its history, the GPIF in October reduced its goal for domestic debt to 35 percent of holdings from 60 percent, while pledging to more than double its allocation to equities.
Analysts are speculating about how much more the fund needs to buy and sell to arrive at the goals and when it will happen, after investment results last week showed it’s closing in on the new weightings.
“It’s not like we have to be bang on 35 percent and not stray from it,” Mitani said in an interview in Tokyo on Tuesday. “We have no intention to move mechanically.”
Domestic bonds fell to a record 39 percent of assets at the end of March, the fund said July 10. That’s down from about 50 percent at the end of September, before the GPIF announced its strategy change.
Japanese stocks rose to 22 percent and overseas equities hit 21 percent, both the highest ever. The fund targets 25 percent for each. It has a deviation range of 10 percent for Japanese debt and 9 percent for local shares.
The benchmark Topix index has gained about 24 percent since GPIF’s asset-change announcement on Oct. 31. The benchmark 10-year Japanese government bond yielded 0.43 percent on Thursday in Tokyo.
The GPIF won’t necessarily buy more domestic bonds if redemptions push its weighting below the 35 percent goal, Mitani said.
“We don’t have to,” he said. “There’s leeway within the deviation limits.”
Mitani is unchanged in his reluctance to hedge the fund’s foreign assets against currency fluctuations. While he doesn’t rule out such steps in the future, he says he expects the yen to remain weak for now.
“The euro will rise once things in Greece calm, and a strong-dollar, weak-yen outlook seems the most plausible,” Mitani said. “There’s no need to rush to consider hedging.”
The GPIF reported a ¥700 million ($5.6 million) loss on its overseas infrastructure investments last fiscal year due to exchange-rate fluctuations, it said July 10. Junko Shimizu, who sits on GPIF’s investment committee, said in February that “it’s unbelievable” that the fund doesn’t hedge its currency risk.
Mitani, who agreed in March to stay on as head of the fund until a successor was found, says it would be difficult to hedge the GPIF’s large amounts of overseas assets without breaching its mandate not to impact markets.
“Even speculation that we were going to do so would move markets,” he said.
Despite introducing an asset mix that assumes the nation’s prices will rise, the former BOJ official remains unconvinced the central bank will be able to achieve its target for stable 2 percent inflation under the current policy program.
The BOJ maintained record stimulus on Wednesday while trimming its inflation outlook for the fiscal year through March 2016 to 0.7 percent from 0.8 percent. The bank’s preferred gauge of inflation was at 0.1 percent in May, down from 1.5 percent in April last year, as a decline in oil depressed consumer prices.
While BOJ Gov. Haruhiko Kuroda says prices will only rise if people believe they will, Mitani is far from certain of this logic.
“Kuroda quoted Peter Pan before, saying ‘the moment you doubt whether you can fly, you cease forever to be able to do it,’ ” Mitani said. “But you can’t just wish prices to rise. Easing hasn’t achieved its goal despite its huge amount. Do you really think it will work just because you carry on doing it?”