Japan’s $1.1 Trillion Government Pension Fund Post Record Loss In Q3

Nov 30 Japan’s public pension fund, the world’s biggest, suffered a record 7.9 trillion yen ($64.34 billion) loss in the third quarter as financial markets turmoil triggered by China’s economic slowdown knocked both domestic and overseas equities.

Documents released in Tokyo showed that the USD1.1-trillion Japanese asset manager saw the value of its holdings declined by JPY7.9 trillion in the second quarter of this year.

A GPIF official said despite recent losses, the fund’s general trend is up since GPIF started stock investments 14 years ago.

GPIF lost 5.6 percent last quarter as China’s yuan devaluation and concern about the potential impact if the Federal Reserve raises interest rates roiled global equity markets.

As of the end of September, domestic bonds continue have the largest allocation of GPIF’s funds, with 38.95 percent.

The GPIF, one of the world’s largest institutional investors, has shifted its focus more to riskier assets such as stocks and foreign bonds at the urging of the Abe administration.

By assets, the fund recorded a loss of ¥4.32 trillion in domestic stocks, ¥3.66 trillion in foreign stocks and ¥240.8 billion in foreign bonds. “But in the long-term view, we see there’s less risk of failing to meet pension payouts with the new portfolio”. The Wall Street Journal reported the GPIF has started to hedge against fluctuations in the euro in the “short term” due to a negative outlook for the currency amid expectations for further easing by the European Central Bank, quoting people familiar with the matter. The fund is in a position to use hedges at any time, Mitsuishi said in response to the report, while declining to comment on whether it had.

The fund previously had over 70 percent of its assets invested in lower-yielding domestic government and foreign bonds.

The move was aimed at dealing with Japan’s soaring number of retirees who depend on the mammoth pension, but the quarterly loss highlights the risks of that strategy.

GPIF hadn’t posted a quarterly loss since the three months through March 2014. The country’s Government Pension Investment Fund lost 5.6% last quarter.