Japan’s Pension Funds to Change Benchmarking Index, Switch to More Passive Investments

(March 24, 2010) – Japan’s $1.3 trillion Government Pension Investment Fund said it may cut money managers for passive investments, which represented 80% of the GPIF’s stock and bond allocations as of March 2009. It will also incorporate new benchmark indexes, Bloomberg reported.

“There are very thinly traded shares in the Topix, and moving those stocks is a handicap,” outgoing President Takahiro Kawase said in his office in Tokyo to the news service. “It’ll be much easier for us to trade if we focus on large-cap stocks with more liquidity,” he said, explaining the fund’s decision to possibly move away from the Topix index for Japanese stocks and the Numura-BPI index for bonds.

According to the GPIF’s latest quarterly report, the Japanese fund measures its performance against the Topix index, including dividends, for domestic stocks, and the Nomura-BPI index, excluding asset-backed securities, for bonds, Bloomberg reported.

Recently, the fund, which has often been labeled as being too conservative, reported it would not change its asset allocation model for the next five years. Its current model allocates 67% to domestic bonds, 11% in domestic stocks, 9% in foreign stocks and 8% in foreign bonds.

The fund counts BlackRock Inc., Morgan Stanley and State Street Corp. among its fund managers.