UPDATE 1-Japan GPIF fund rebounds with $6.5 bln quarterly investment gain

Fri Nov 30, 2012 3:31am EST

* Foreign stocks return +4.87%, helps overall performance

* Japan stocks posts 2nd straight quarter of loss

* GPIF's asset size $1.32 trln, equivalent to Australian GDP

By Chikafumi Hodo

TOKYO, Nov 30 (Reuters) - Japan's GPIF, the world's largest public pension fund, logged an investment gain of $6.5 billion for July-September compared to a loss in the prior quarter, as a rise in foreign equities helped lift its overall performance.

Fund managers and market dealers around the world closely watch the performance of the Government Pension Investment Fund, known as GPIF, due to the size of its portfolio, which is equivalent to the economy of Australia.

GPIF posted a rate of return of a positive 0.49 percent in July-September, a reversal from a negative return of 1.85 percent for the previous quarter.

The performance translated into an investment gain of 528.7 billion yen ($6.46 billion), compared with a fall of 2.069 trillion yen in April-June.

The public fund's total assets fell to 107.7 trillion yen ($1.32 trillion) by the end of September from 108.2 trillion yen in June.

The GPIF is believed to have sold assets during the quarter to raise cash for pension payouts.

Healthy investment returns are vital for the fund as it has been paying out more in benefits than it receives in contributions to the national pension system since the 2009/10 financial year.

For the current financial year, ending next March, in which the first wave of Japan's baby boomers is set to turn 65 and becomes eligible to receive full pension payments, the fund aims to generate about 8.87 trillion yen in cash for pension payouts.

LAGS CALPERS, CPPIB

The GPIF is under pressure to raise returns to cope with a rapidly ageing population, although it takes a conservative stance with largely passive management of its massive portfolio.

The public fund's rate of investment return in the six months to September was minus 1.39 percent.

GPIF lagged behind foreign counterparts such as Calpers (the California Public Employees' Retirement System), which produced a positive return of 3.4 percent, and the Canada Pension Plan Investment Board (CPPIB), which showed a positive return of 2.4 percent during the same six months.

The GPIF invests reserves of national and employees' pension plans and allocates nearly two-thirds of its assets to Japanese government bonds.

Yields on benchmark 10-year JGBs fell to a 9-1/2 year low of near 0.7 percent this week.

The GPIF achieved its biggest investment gain from foreign stocks, with a positive return of 4.87 percent for the quarter, a performance largely in line with the benchmark MSCI Kokusai index.

The public fund logged a positive return of 0.49 percent in Japanese bonds. From foreign bond investments, it produced a positive return of 0.56 percent.

It performed poorly in Japanese stocks, with a negative return of 3.43 percent, or an investment loss of 439.4 billion yen.

This was the second straight quarter of negative return in domestic stocks, with the six-month performance to September worsening to minus 12.92 percent, or a 1.83 trillion yen loss.

The Topix index of all first-section shares on the Tokyo stock market fell more than 4 percent in the three months to Sept. 30.

The public fund said its performance in domestic equities was hurt by falls in the chemical and transport equipment sectors.