UPDATE 1-Japan public fund posts worst performance in 3 yrs

Fri Dec 2, 2011 3:37am EST

* Posts biggest investment loss since Lehman shock

* Fund's asset size falls by 4.3 pct

* Suffers huge loss in foreign stocks, domestic shares

* At final stage of picking managers for emerging markets equities

By Chikafumi Hodo

TOKYO, Dec 2 (Reuters) - Japan's public pension fund, the world's largest, logged its worst investment performance in three years in July-September as strength in the yen and Europe's debt crisis hurt returns in foreign assets and domestic equities.

The Government Pension Investment Fund (GPIF), which needs to raise returns for a rapidly ageing population, said its rate of return fell to minus 3.32 percent, or a loss of 3.73 trillion yen ($48 billion), after a slim return of plus 0.21 percent, or a profit of 240 billion yen, in April-June.

Hurt by huge losses on foreign equities in particular, it was the fund's first investment loss in five quarters and its biggest loss since the October-December quarter in 2008 when Lehman Brothers went bankrupt.

"Our performance was mainly hurt by falls in domestic and foreign equities," Masahiro Ooe, a councilor at the GPIF, told a news briefing on the fund's performance.

"The yen's appreciation worsened the performance in foreign equities and foreign bonds."

Its rate of return in the six months to September was minus 3.1 percent, outperforming the California Public Employees' Retirement System (Calpers) rate of minus 5.4 percent, but lagging the Canada Pension Plan Investment Board, which produced a return of plus 0.1 percent during the period.

The fund, whose portfolio is nearly worth as much as the Russian economy, said total assets fell 4.3 percent to 108.9 trillion yen during the period.

The GPIF has been selling assets to raise proceeds for pension payouts since the financial year 2009/10 and plans to raise about 8.9 trillion yen worth of cash by selling assets in the current financial year to March 2012.

In the previous financial year, the fund sold 4.77 trillion yen worth of domestic bonds and foreign securities, its second year of being a net seller of assets.

BIG LOSSES

The GPIF suffered large losses on foreign and domestic equities, as well as foreign bonds due to the strength of the Japanese currency, which appreciated nearly 5 percent against the dollar during the period.

Falls in global share prices stemming from Europe's sovereign debt problems and concerns over the global economic slowdown also depressed the GPIF's performance in equities.

For foreign equities, it recorded a negative return of 21.36 percent, or a 2.74 trillion yen loss, and for Japan stocks, it posted a negative return of 9.75 percent, or 1.27 trillion yen.

For foreign bonds, it posted a negative return of 4.27 percent, or 406.1 billion yen, but managed to book a positive return of 1.06 percent, or a profit of 618.4 billion yen, in Japanese government bonds.

The GPIF invests the reserves of national and corporate pension plans. It allocates about two-thirds of its assets to JGBS, where the benchmark 10-year yield is now around 1.065 percent.

The GPIF plans to begin investment in emerging markets equities by the end of the current financial year in March 2012 and Ooe reiterated that it is in the last phase of selecting managers.

"We cannot give any details now, although we are in the final stage (of choosing managers). We'll disclose them swiftly as soon as we complete our processes."

Sources familiar in the matter said in September that 11 companies were on the final shortlist to supervise investments into emerging markets equities for the GPIF.

Six of the institutions on the shortlist are Japanese, with the rest from overseas, the fund industry sources said.

They said the Japanese money managers are: Mizuho Asset Management, Sumitomo Mitsui Asset Management, Chuo Mitsui Asset Management, Nomura Asset Management, Nomura Funds Research and Technologies, and T&D Asset Management.

They said the other firms are: Invesco, Neuberger Berman, Lazard Asset Management, BNY Mellon and BNP Paribas Investment Partners.

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