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Japan’s Pension Investment Fund expected to ramp up equity exposure

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Japan’s Government Pension Investment Fund (GPIF), the world’s biggest retirement fund, is thinking to increase its allocation to domestic equities to approximately 30%, according to Nikko Asset Management.

Hiroki Tsujimura, the company’s CIO in Japan, said many professionals within the fund had been discussing the ideal allocation for the asset class, and that the 30% figure “had been talked about”.

The $1.2trn (€872bn) fund currently has a 21% allocation to domestic equities.

“It is expected that GPIF should probably raise its allocation to domestic equities by approximately 5-10%,” Tsujimura said.

Nikko Asset Management was one of eight fund managers selected by the fund last year to manage its foreign equity portfolio using MSCI Kokusai as benchmark.

It was also named last month as one of 11 traditional active managers.

GPIF is awaiting the outcome of a five-year Health Ministry review of public pension finances.

Finance minister Taro Aso said last month changes to the Health Ministry’s plan for the GPIF would be discussed in June, when the government is expected to present another set of measures to boost growth.

Investors are expecting the government to announce details of asset allocation targets and new investment approaches.

The Health Ministry, which oversees the fund, has made key appointments to the fund, added new managers and styles, following recommendations from a state panel led by prime minister Shinzo Abe.

A 10% increase will equate to the amount of Japanese equities purchased by foreign investors during the whole of last year, according to Tsujimura.

The fund has a 55% allocation to domestic bonds, or Japanese Government Bonds (JGBs).

The 10-year rate for JGBs is about 0.6%.

GPIF is widely expected to allocate more of its funds to riskier assets including equity, infrastructure and private equity as pension obligations swell in the world’s oldest population.

In February, the fund agreed with Canada’s Ontario Municipal Employees Retirement System and the Development Bank of Japan to invest in infrastructure projects through an investment trust fund.

Since taking power in December 2012, Abe has pressed the GPIF to overhaul its portfolio, putting more money into domestic stocks and other riskier instruments to support his efforts to pull Japan out of more than a decade of deflation.

“We now expect stock prices to appreciate and undervalued stocks to gradually disappear as the revival of Japan’s economy gather momentum,” Tsujimura said.

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