UPDATE 1-Japan GPIF to expand investment to foreign high-yield debt, emerging market bonds

Tue Apr 8, 2014 11:09pm EDT

* Seeks managers for inflation-linked bonds for first time

* Foreign bonds 10 pct of total portfolio of $1.26 trln

* Size of GPIF portfolio larger than Mexico's GDP (Adds new fund strategy plans, names of current managers)

By Chikafumi Hodo

TOKYO, April 9 (Reuters) - Japan's giant public pension fund has issued a tender to hire asset managers to supervise its $101 billion portfolio of foreign bonds, expanding its investment in the category beyond conventional bonds for the first time as it seeks higher returns to cope with the country's ageing population.

The Government Pension Investment Fund (GPIF), the world's largest, said on Wednesday it will seek managers for emerging markets bonds, foreign high-yield bonds, and foreign inflation-linked bonds. With total assets of $1.26 trillion, the fund is bigger than Mexico's gross domestic product.

The move follows a recent series of changes in investment strategies by and pressure from Prime Minster Shinzo Abe's government to diversify investments and rely less on low-yielding domestic bonds.

Currently, GPIF only uses Citigroup's WBIG and WGBI indexes as benchmarks for its foreign bond investments.

On Friday, the public fund surprised the asset management industry by dropping many Japanese managers while boosting the numbers of foreign asset firms in its selection of supervisors for its domestic equities portfolio.

Out of 14 newly appointed active managers for Japanese stocks, only four were Japanese, sharply down from eight domestic managers in the previous line-up. GPIF included U.S.-based Taiyo Pacific Partners, which is known to be an activist fund in the asset management industry, as a manager for actively managed Japanese equity portfolio.

A panel appointed by Prime Minister Abe said in November that GPIF and other public funds should seek higher returns by diversifying into asset classes such as infrastructure as an alternative.

In February, GPIF said it had reached an agreement with Canada's Ontario Municipal Employees Retirement System and Development Bank of Japan to invest in infrastructure projects through an investment trust fund.

Separately, the public fund started investments in emerging markets equities in 2012.

The tender for foreign bonds closes on May 20 and the selection process customarily takes about one year. The public fund last held a tender for active foreign bond managers in 2006 and passive managers in 2010.

Current managers for actively managed foreign bonds include AllianceBernstein, Goldman Sachs Asset Management and Tokio Marine Asset Management.

For passively managed foreign bonds, managers include State Street Global Advisors, BlackRock and Mizuho Trust and Banking. (Reporting by Chikafumi Hodo; Editing by Dominic Lau and Kenneth Maxwell)

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