* GPIF portfolio of $1.26 trln, nearly matches Spanish GDP
* GPIF says will investment in infrastructure for first time
* Plans to invest $2.7 bln in 5 yrs in infrastructure
* Will invest jointly with Canada's OMERS, Japan's DBJ
By Chikafumi Hodo
TOKYO, Feb 28 Japan's public pension fund, the
world's largest, reported a 4.73 percent return on investments
in the October-December quarter, thanks to gains in Japanese
stocks and an increase in the value of its foreign assets due to
a weaker yen.
The Government Pension Investment Fund (GPIF) has posted an
increase in returns for a record six consecutive quarters,
having shown a 2.71 percent increase in the previous quarter.
The public fund announced it has reached an agreement with
Canada's Ontario Municipal Employees Retirement System (OMERS)
and Development Bank of Japan (DBJ) to invest in infrastructure
projects through an investment trust fund.
GPIF plans to invest as much as $2.7 billion over five
years, mainly in developed countries infrastructure investments
selected by OMERS.
The value of its total portfolio - which almost matches the
Spanish economy, the world's 13th largest in size - rose 4
percent over the quarter to stand at a record 128.6 trillion yen
GPIF's portfolio has increased by 19 percent since Prime
Minister Shinzo Abe's aggressive reflationary and monetary
policy triggered a sharp fall in the yen and gains in Tokyo
stocks in late 2012.
The overall investment gain during the October-December
quarter was 5.77 trillion yen, compared with a gain of 3.24
trillion yen in the previous quarter.
The return in October-December was the fourth best quarterly
gain in percentage terms since 2008, when all of the money from
the previous fund management system was transferred to GPIF, and
the second biggest gain in value terms.
Global investors will be closely watching the fund's review
of its asset allocation strategy after receiving a new pension
actuarial revaluation from the government scheduled in March.
Japanese government bonds (JGBs), which make up the lion's
share of the portfolio, generated a meagre return of 0.18
percent in the October-December quarter.
By comparison, foreign equities produced the biggest
investment return of 16.23 percent, followed by Japanese stocks
with 9.19 percent and foreign bonds with 8.16 percent.
WEIGHTING IN STOCKS RISES
During the latest quarter, the GPIF's holdings of JGBs fell
near their asset allocation floor of 52 percent, while holdings
of Japanese equities rose close to their ceiling of 18 percent
of total assets.
As of the end of December, GPIF had 53.4 percent of its
total assets held in domestic bonds, 16.66 percent in Japanese
equities, 10.26 percent in foreign bonds, 14.68 percent in
foreign equities and 5 percent in short-term assets.
Japanese share prices have fallen from recent highs since
the start of the year, but GPIF could come under pressure to
rebalance its assets in line with the portfolio targets should
share prices start to recover.
Founded in 2001, the fund conducted the most significant
shake-up of its investment strategy last June when it revised
its allocation targets, setting a core weighting of 12 percent
for Japanese stocks, with a fluctuation of 6 percentage points
allowed either way.
The core weighting for domestic bonds was set at 60 percent,
foreign stocks at 12 percent, and foreign bonds at 11 percent.
GPIF also has 5 percent invested in short-term assets.
GPIF is under pressure to overhaul its JGB-heavy portfolio
after a government-appointed advisory panel recommended
fundamental changes to its governance and investment strategy in
a report issued in November.
For instance, GPIF began investing in emerging markets
equities in 2012.
GPIF said earlier on Friday it will start investment in
infrastructure for the first time. Infrastructure investment
will be categorised in GPIF's foreign bond portfolio.
GPIF plans to invest about $2.7 billion, or 280 billion yen,
in infrastructure investments which Canada's $60 billion OMERS
selects. Another partner, Japan's DBJ, plans to invest about
$100 million in the fund.
Japan's Nissay Asset Management and New York-based
investment consultant Mercer Investments will supervise the fund
on behalf of GPIF.
GPIF hopes diversifying into infrastructure will improve the
efficiency of its portfolio.
Tokihiko Shimizu, director-general of GPIF's research
department, said the public fund will continue to seek
opportunities to partner with other public entities to invest in
other infrastructure projects.
"We've set this amount for this particular deal between
three entities, while we'll continue to consider other
possibilities," Shimizu said.
The fund needs to generate healthy investment returns. Since
the 2009/10 financial year, it has been paying out more in
benefits than it has received in contributions due to the rising
number of retirees among Japan's ageing workforce.
Reserves managed by GPIF represent one of three sources of
revenue to support Japan's pension scheme, the others being
contributions from the working population and a state subsidy
from the national treasury.