• Bloomberg


The head of the world’s largest pension fund said he is looking beyond the safety of sovereign debt as an era of falling rates forces even the most conservative of investors to rethink playbooks.

Masataka Miyazono, the president of Japan’s mammoth Government Pension Investment Fund with ¥162.1 trillion ($1.5 trillion) in assets, said the fund is looking at a range of foreign debt as it seeks steady returns in pandemic-riven markets after swinging from a record loss to a historic gain in the first six months of the year.

“We’re going to increase the sophistication of our investment, while closely monitoring the risk-return,” Miyazono, 67, said in an interview in Tokyo on Tuesday. “Apart from foreign sovereign bonds there’s also mortgage debt, corporate debt to consider.”

Among the options for the GPIF, as the fund is known, could be to redeploy funds parked in short-term Treasuries into riskier assets after global sovereign yields dropped to record lows. The fund is also considering European debt following the European Union’s agreement on a recovery fund, he said.

“Apart from Treasuries, there’s also European debt, which is more difficult from a currency perspective,” he said. “The EU’s recovery fund is a point of progress to keep in mind, and we’ll see if this is just a short-term move or a move toward reassessing the EU bloc.”

Miyazono could scarcely have taken over the top job at a more challenging time. Appointed just days after the worst of the coronavirus market chaos in March, one of his first public appearances was to announce the fund’s record ¥17.7 trillion loss, a sensitive political topic that makes headlines in an aging nation where social security is a major concern.

New portfolio

Miyazono’s time in charge has coincided with the fund making its biggest changes to its asset allocations in years. The fund swung to a record quarterly gain in the three months ended June, and there are no plans in place to alter the fund’s portfolio, Miyazono said.

“Markets are volatile at the moment, so it is more challenging than normal to manage the portfolio,” Miyazono acknowledged. “But we’re a long-term investor. I think the key is to remain loyal to your basic portfolio.”

A new portfolio boosted GPIF’s allocation of foreign bonds by 10 percentage points to 25 percent, and followed an earlier move that allowed it to classify currency-hedged foreign bonds as part of its domestic debt portfolio. Asked about its stance on the hedged debt, Miyazono was cautious.

“I don’t think it’ll be a straightforward operation where we just cut holdings of Japanese government bonds and add to foreign debt,” he said. “We would obviously have to consider currency rate effects as well.”

Other public pension funds in Japan tend to align their asset allocations with GPIF, which also provides a lead for large insurers. They are also increasingly turning to overseas debt markets, and venturing beyond sovereign debt into corporate bonds. But Miyazono still likes U.S. debt.

“Given the market size and liquidity, it’s easier to invest in Treasuries,” he said.

The fund is also sticking to its goals in the environmental, social and governance space. “Even with the coronavirus pandemic, there’s no change to our goal to actively get involved in ESG investing,” Miyazono said. “But we don’t have numerical targets to hit.” The fund publishes a report on its ESG investing each year in late summer.

Agriculture lender

A graduate of Tokyo University’s elite law department, Miyazono spent most of his career at Norinchukin Bank, an agricultural lender and major institutional investor. He took over the GPIF without the ability to lean on rock-star investment chief Hiromichi Mizuno, who departed just as Miyazono was appointed.

One of Mizuno’s final moves was to suspend lending of foreign stocks, a step he linked to short-selling being inconsistent with the fund’s stewardship code. Miyazono said the decision could be reviewed in the future.

“If the environment changes we may have the opportunity to review our position,” he said, “but we’re not in that situation at the moment.”

Mizuno was replaced as chief investment officer by the more reticent Eiji Ueda, a figure less well-known to international investors. Miyazono, however, praised Ueda’s management skills and market savvy.

“In the four months that I’ve worked with him, I can honestly say he was the right pick,” Miyazono said.

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