Japan’s pension giant hires, fires managers while buying up domestic bonds

The world’s largest institutional investor, the Â¥122,100 billion ($1.4 trillion) Government Pension Investment Fund of Japan (GPIF), has increased its allocation to domestic bonds and short-term assets at the expense of international bonds and domestic and international equities in the six months since the end of its fiscal year, a period which saw 12 managers terminated and 21 new managers appointed in a flurry of mandate activity.

The past six months has seen the GPIF has increase its domestic bond allocation by nearly 3.5 per cent, and its weighting toward short-term assets by 1 per cent.

The bond allocation is overweight the target position of 67 per cent, although well within the 8 per cent range, but the allocation to short-term assets is well below its 5 per cent target.

Despite the reduction in its exposure to international markets, the GPIF still has nearly $134 billion invested in international equities and $114 billion in international bonds.

Overall, about 78 per cent of the fund is in market investments, of which 63 per cent is passively managed, with 21 per cent is in Fiscal Investment and Loan Program (FILP) bonds.

In the 2008-09 fiscal year, which ended in March, the GPIF reduced its weighting towards actively managed international equities, but widened the number of managers it employed, moving from 12 to 15.

In this time frame, eight of its 12 active international equities managers were terminated, with 11 new managers selected.

Similarly, in active domestic equities it terminated four of 15 managers and appointed a further 10, giving a total of 21 managers.

Overall it employs 80 funds managers.

The fund suffered from its 11.1 per cent allocation to domestic stocks in the September quarter, the same asset class that contributed a return of 20 per cent in the June quarter, with the fund generating an overall return of 1.06 per cent for the three months to September.

The GPIF was reasonably protected in the last financial year ended March 2009, not suffering nearly the same losses as a lot of other funds, with a return of -7.57 per cent.

The fund’s asset allocation is heavily weighted towards domestic bonds, with a September allocation of 70 per cent. It also has 11.1 per cent in domestic equities, 8.15 per cent in international bonds, 9.64 per cent in international stocks, and 1.07 per cent in short-term assets.