Japan considers pension fund assets to create SWF
JAPAN - Plans to siphon off Y10trn (US$90bn) from the world's largest pension fund, Japan's Government Pension Investment Fund (GPIF), to form a sovereign wealth fund (SWF) have been put forward this week by a working party from within the country's ruling Liberal Democrat Party (LDP).
While details of the plan, which is only at the earliest of discussion stages, are vague, the formation of an SWF has been a hot topic in Japanese politics for several months now, with the country's FX Reserve eyed as another potential source of funding.
The suggestion is the latest in a long line of proposals targeting the Y150trn (US$1.4trn) languishing in the GPIF, which has seen little change in its ultra-conservative management in the last ten years.
Last year, the idea to divide the fund into ten CalPERS-sized funds, to be managed independently, was put forward. Also discussed was the bringing together of the GPIF with other public sector pension funds in order to implement a more consistent investment policy.
With the GPIF falling under the responsibility of the Ministry of Health & Welfare, all proposals for reform have so far become bogged down in politics.
"In Japan, if we propose a drastic change of pensions law, it takes time," explained Noburu Yamaguchi, senior executive advisor in the Fiduciary Service Research Center at Nomura Securities.
"Pension reform is always a political - not economic - issue [here] and without having one dominant party, it's not easy."
Another fund manager, who didn't wish to be named, said while the rest of the world was waiting with bated breath to learn the future of the GPIF, those on the ground in Japan knew nothing was likely to happen for at least another five years.
At present, around 70% of the GPIF's assets are invested in Japanese government bonds, which yield only 1.5% pa, while the remaining assets are split between global equities, global bonds, global balanced and Japanese bonds. Returns are targeted at around 3% pa.
Taro Ogai, a director in Watson Wyatt's Tokyo office, commented: "If they could increase investment returns by even 0.1%, it would be huge. It doesn't even have to mean taking more risk, just being more sophisticated and efficient."
The suggestion is the latest in a long line of proposals targeting the Y150trn (US$1.4trn) languishing in the GPIF, which has seen little change in its ultra-conservative management in the last ten years.
Last year, the idea to divide the fund into ten CalPERS-sized funds, to be managed independently, was put forward. Also discussed was the bringing together of the GPIF with other public sector pension funds in order to implement a more consistent investment policy.
With the GPIF falling under the responsibility of the Ministry of Health & Welfare, all proposals for reform have so far become bogged down in politics.
"In Japan, if we propose a drastic change of pensions law, it takes time," explained Noburu Yamaguchi, senior executive advisor in the Fiduciary Service Research Center at Nomura Securities.
"Pension reform is always a political - not economic - issue [here] and without having one dominant party, it's not easy."
Another fund manager, who didn't wish to be named, said while the rest of the world was waiting with bated breath to learn the future of the GPIF, those on the ground in Japan knew nothing was likely to happen for at least another five years.
At present, around 70% of the GPIF's assets are invested in Japanese government bonds, which yield only 1.5% pa, while the remaining assets are split between global equities, global bonds, global balanced and Japanese bonds. Returns are targeted at around 3% pa.
Taro Ogai, a director in Watson Wyatt's Tokyo office, commented: "If they could increase investment returns by even 0.1%, it would be huge. It doesn't even have to mean taking more risk, just being more sophisticated and efficient."
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