Japan Pension Hit by Domestic Economy Problems

All the money in the (pension) world, but Japan’s GPIF is not immune to domestic problems.

The Government Pension Investment Fund in Japan saw $17.7 billion wiped off its domestic stock portfolio, it announced today, with a 9.83% loss. A further $12.5 billion was sliced from its international equities holdings with a 7.55% loss. Equities make up just under 23% of the entire portfolio and are roughly evenly split between the two geographies.

At the end of June, the fund was valued at Y108,168 billion ($1.37 trillion) down from Y113,611 billion three months earlier. This loss marked the first negative return since the July – September period last year.

The fund’s domestic stock portfolio also underperformed its benchmark return target by 0.09% over the quarter. Domestic bonds and international stocks and bonds all outperformed their benchmark.

Japan has been suffering economic troubles for several years, but the tsunami in March last year has increased the pressure on the nation.

In the twelve months to the end of August this year, the MSCI Japan index showed a 5.43% decline. Over three years the stock market has fallen 3.22% and over five years it fell 7.53%.

In comparison, the MSCI World index has risen 6.34% and 5.15% over the last 12 months and three years, respectively. It fell by 3.76% over the last five years, however.

The outlook for Japan does not look set to improve in the short term. Analysts at Societe Generale said today: “Together with weak industrial production outlook, domestic demand is obviously starting to run out of steam. The Cabinet office has also recently revised down its official outlook for both production and private consumption.”

The French bank said growth in Japan had probably slowed in the third quarter after an already weak second three months in terms of productivity and exports.

Domestic bonds make up around 65% of the pension fund portfolio. Just under a quarter of this allocation is in Financial Investment Loan Program (FILP) bonds, a type of government debt. These bonds made a positive 0.35% return, adding $600 million to the GPIF. This was much lower than the $2.9 billion it added a quarter earlier.

Last year, the GPIF made its first foray into emerging markets after being one of the more conservatively managed funds since launch in 2001.