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UPDATE 2-Japan panel urges govt pension fund to diversify
(For more stories on Japan's economy click [ID:nECONJP]) (Updates with finance minister comments)
TOKYO, May 23 (Reuters) - A panel under Japan's top economic advisory council urged the country's $1.44 trillion state-run pension fund on Friday to diversify its holdings, including investments in alternative assets, to seek higher returns. The panel said in a report that the Government Pension Investment Fund (GPIF) should seek to enhance "international diversification" by taking advantage of various investment tools, such as real estate and commodity futures.
"The ratio of domestic bond investments at the GPIF is higher than similar investors," the report said, adding that the fund invests about two-thirds of its 150 trillion yen ($1.44 trillion) holdings in Japanese bonds.
"Japanese people, the beneficiary of the GPIF, are not enjoying the fruits of progress in financial technology, possibly suffering opportunity costs as a result," the report said.
Currently the GPIF is bound to follow a model portfolio, which the government reviews only every five years. The panel called for a more flexible style of investment and also suggested hiring fund managers from the private sector.
The proposals were also discussed at a meeting on Friday of Prime Minister Yasuo Fukuda's top economic advisory body, Council on Economic and Fiscal Policy.
But some in the government and ruling parties are opposed to more risk-taking by the GPIF, the world's largest pension fund, concerned that such an attempt could lead to unexpected losses.
Some also worry that Japanese government bond prices could fall sharply if the GPIF shifts a huge amount of funds out of them to invest in other assets.
That would increase interest payment costs for the government, which has about 775 trillion yen ($7.45 trillion) of public debt, nearly 150 percent of the nation's gross domestic product.
Finance Minister Fukushiro Nukaga told the meeting that the government should pay attention to the impact of such reforms on financial markets, Economics Minister Hiroko Ota said. ($1=104.09 Yen) (Reporting by Hideyuki Sano; Editing by Michael Watson)
