August 30, 2011 / 10:00 AM / 8 years ago

UPDATE 1-Japan public fund's assets drop sharply in April-June

* GPIF’s assets fall 2.2 pct by end-June from end-March

* Fund’s total assets of $1.48 trln similar to Russia’s GDP

* Posts positive return for four straight quarters but lags Calpers

* Selection of emerging market equities fund managers in final stage (Add comments, background of asset sales)

By Chikafumi Hodo

TOKYO, Aug 30 (Reuters) - Japan’s public pension fund, the world’s largest, managed a small investment return in April-June while its assets fell sharply by $33 billion from the previous quarter, suggesting the fund sold assets to cover pension payouts.

The Government Pension Investment Fund’s (GPIF) assets under management shrank 2.2 percent to 113.75 trillion yen ($1.48 trillion) in the latest quarter, still equivalent in size to the Russian economy, the world’s 11th largest, in 2010.

The public fund acknowledged that it had sold assets to raise proceeds for payouts for the current financial year to March 2012 but declined to give details.

“Based on our plans, we are quietly selling (assets) to raise cash,” Masahiro Ooe, a councilor at the GPIF, told a news briefing on the fund’s performance.

Under its budget plan for the current financial year, the GPIF aims to generate about 8.9 trillion yen worth of cash for pension payouts, Ooe said.

In the previous financial year to March, the fund sold 4.77 trillion yen worth of domestic bonds and foreign securities.

The fund became a net seller of assets for the first time in 2009/10, selling 720 billion yen of Japanese bonds.

The GPIF said its rate of return on investments dropped to 0.21 percent in April-June, hurt by a fall in global equity prices and strength in the yen, which traded near record highs against the dollar.

The GPIF’s April-June return, in positive territory for a fourth consecutive quarter, was down from 0.69 percent in the previous quarter.

It also pales in comparison to the 1.75 percent produced by the California Public Employees’ Retirement System (Calpers) and was less than the 0.9 percent generated by the Canadian Pension Plan Investment Board.

The GPIF’s performance translated into a profit of 240 billion yen, down from 798.1 billion yen in January-March.


During April-June, global equity markets were hurt by concerns over a U.S. economic slowdown and the euro zone debt crisis. Domestic shares were also hit by the impact of the March 11 earthquake on corporate earnings and a 3.2 percent strengthening of the yen to less than 80 per dollar. The yen hit a then-record high of 76.25 to the dollar in March.

Japan’s broad Topix index dropped 2.3 percent during the three-month period.

The fund’s investments in Japanese equities brought a negative return of 2.06 percent, or a 276.4 billion yen loss, while overseas equities produced a negative return of 1.81 percent, or a 236.4 billion yen loss.

But domestic bonds benefited from safe-haven inflows and the fund’s investments in Japanese bonds produced a return of 1.11 percent, or a 651.3 billion yen profit. Its investments in foreign bonds produced a return of 0.4 percent, or a 37.7 billion yen profit.

The GPIF managed to outperform market benchmarks in all four asset classes — domestic bonds, domestic equities, foreign bonds and foreign equities.

The GPIF invests the reserves of national and corporate pension plans and must provide for a rapidly ageing population. It allocates about two-thirds of its assets to Japanese government bonds, where benchmark 10-year yields are slightly above 1 percent.

By contrast, equities account for 50 percent of Calpers’ asset allocation and 60 percent for the Canadian Pension Plan Investment Board.

The GPIF, aiming to diversify its portfolios and generate higher returns as it confronts huge shortfalls and an ageing population, plans to begin investing in emerging markets equities by the end of the current financial year.

Ooe said the GPIF was in the final stage of selecting asset managers to supervise its emerging market equities funds.

“We want to complete the process of selection as soon as possible,” he said. He did not indicate how many companies remained in the running. ($1 = 76.985 Japanese Yen) (Reporting by Chikafumi Hodo; Editing by Edwina Gibbs and Edmund Klamann)

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