Japan LDP to compile wealth fund proposals in May

TOKYO, April 22 (Reuters) - A Japanese ruling party panel plans to compile proposals next month on creating a sovereign wealth fund aimed at more effectively manage government assets including part of foreign reserves, a party lawmaker said on Tuesday.

Kotaro Tamura, a key member of the Liberal Democratic Party panel studying the creation of such a fund, told a seminar that such an investment vehicle could manage some of Japan's foreign reserves, public pension funds, government-owned property and resources.

Sovereign wealth funds from Asia and the Middle East have become more influential in financial markets after pouring billions of dollars into big banks on Wall Street and Europe that were reeling from losses related to the U.S. mortgage market. [ID:nN20388254]

The LDP panel has only just begun debating the creation of the investment body since early this year. [ID:nT90340]

It originally planned to submit proposals to the prime minister this month, but Tamura said it had been delayed due to other political events.

"The most important thing is timing. We are trying to do this quickly," Tamura said, adding that a wealth fund, if created in Japan, should take advantage of recent declines in financial markets and asset prices so that its investment could gain more profits when the markets recover.

The panel plans to submit proposals to the prime minister in mid-May and it wants to submit relevant bills to parliament in September after getting approval from the premier.

If parliament passes those bills, the fund could be set up as early as next March, Tamura said.

But that may not be as easy as Tamura hopes.

The Ministry of Finance, which currently manages Japan's $1 trillion foreign reserves, is reluctant to invest the reserves in high-risk, high-return assets such as real estate and stocks as it fears that such a move could lead to losses.

It also wants to avoid distorting the market, given the sheer size of Japan's reserves -- the world's second largest after China.

Tamura said one idea was to more effectively manage interest rate income from foreign assets held in the reserves, which stood at about 4 trillion yen ($38.81 billion) last year, under the wealth fund.

But he noted that experts in the United States were wary about whether Japan decides to sell U.S. assets in the reserves.

"But what they all told me was as long as we change our asset allocation among dollar-denominated assets, it would be an effective option," said Tamura.

"So we are thinking that the fund could invest in various dollar-denominated assets such as stocks, real estate and derivatives, not just Treasury bills," he added.

Tamura said the fund should be run by professionals with the best skills regardless of their nationality.

"We should recruit the best people and pay them based on merit. We plan to offer them equal treatment as they would get at funds or investment banks," he added. (Reporting by Yoko Nishikawa; Editing by Hugh Lawson)