UPDATE 1-Japan's public pension fund to adopt government's shareholder code

Fri May 30, 2014 5:42am EDT

* Code designed to improve corporate governance, returns

* World's biggest public pension fund owns $218 bln of Japan stocks

* GPIF's adoption likely to encourage others to follow suit (Adds GPIF's stock holding, comments from officials, context)

By Chikafumi Hodo

TOKYO, May 30 (Reuters) - Japan's Government Pension Investment Fund (GPIF) plans to adopt new government guidelines for institutional investors designed to improve corporate governance and investment returns.

The $1.26 trillion fund in a statement on Friday said it is important to adopt the Japanese Stewardship Code, which calls on shareholders to disclose how they vote at annual general meetings and engage more actively with company management.

The ultimate aim of the code is to stoke economic growth.

The world's largest public pension fund had been widely expected to adopt the code after the recommendation of a government advisory panel appointed in November.

The fund had 22.15 trillion yen ($218 billion) invested in Japanese equities as of the end of December, accounting for almost 17 percent of its total portfolio.

With GPIF adopting the code, other institutional investors could follow suit, government officials familiar with the matter told Reuters.

The code was compiled as a part of Prime Minister Shinzo Abe's drive to stimulate the economy, and was inspired by the U.K. Stewardship Code of 2010.

That code was conceived after the global financial crisis of 2008 when institutional investors were widely criticised for not monitoring more closely the management of companies they owned.

($1 = 101.5450 Japanese Yen) (Editing by Chang-Ran Kim and Christopher Cushing)