Stumbling Stocks Result in $51 Billion Loss for World’s Biggest Pension Fund

With losses exacerbated by unfavorable currency moves and a foray into equity markets, the world’s biggest pension fund posted the worst annual performance since the global financial crisis.

The retirement manager said on Friday in Tokyo that 5.3 trillion yen ($51 billion) or 3.8 percent was lost by Japan’s $1.3 trillion Government Pension Investment Fund in the year ended March 31.

Since the fiscal year ended March 31, 2009, this was the biggest drop. While Japanese bonds handed the fund a 4.1 percent gain, GPIF lost 9.6 percent on shares in world markets and 10.8 percent on domestic equities.

A volatile stint for markets was the time when the fund noted the annual loss. Since its allocation to stocks and paring domestic bond holdings in October 2014 was doubled, this is GPIF’s first loss. Returns from overseas investments were reduced as  the yen climbed 6.7 percent against the dollar and Japanese shares sank 13 percent in the year through March. Local debt, which jumped in value as the Bank of Japan’s adoption of negative interest rates sent yields tumbling, was the only asset class to post a profit.

“GPIF are going to be called on to find a method where they can secure returns while controlling risk even when markets are volatile,” Kazuhiko Ogata, chief Japan economist at Credit Agricole SA in Tokyo, said before the results were announced. “It was a chaotic time for financial markets globally, and it was obviously a hard environment to invest in,” Kazuhiko Ogata said.

In what is the first time it’s divulged any detail, individual stock holdings and the issuers of the bonds it held as of March 2015 were disclosed by the fund.

Apple Inc. outside Japan and Toyota Motor Corp. and Mitsubishi UFJ Financial Group Inc. in Tokyo were GPIF’s biggest investments in stocks. Japanese government bonds and U.S. Treasuries comprised of the fund’s largest debt holdings.  Fund official Hiro Mitsuishi said on Monday GPIF is staggering the releases to avoid impacting markets and plans to announce its holdings as of March this year on Nov. 25.

At the end of March, the fund held 38 percent in domestic bonds and 22 percent of investments in local stocks. While foreign debt accounted for 13 percent of its assets, its overseas equity holdings made up 22 percent. Alternative investments up from 0.04 percent at the end of 2015 and were 0.06 percent of holdings. 35 percent for local bonds, 25 percent each for Japanese and overseas stocks and 15 percent for offshore debt is the general allocation break up targeted by GPIF.

According to the statement, of GPIF’s holdings, almost 80 percent were passive investments.

Speculations were spurred that Prime Minister Shinzo Abe was holding off on releasing bad news until after upper-house elections held earlier this month due to the announcement of Bottom of Form

GPIF’s performance at a time that is three weeks later than usual. With the Democratic Party of Japan pledging to return GPIF’s investments to safer assets in its election manifesto, opposition party lawmakers have been critical of Abe’s decision to increase riskier assets.

(Adapted from Bloomberg)

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