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Japan $80 billion public fund may shift funds to stocks from bonds: sources

A pedestrian holding an umbrella walks past a stock quotation board displaying various stock prices outside a brokerage in Tokyo July 29, 20
A pedestrian holding an umbrella walks past a stock quotation board displaying various stock prices outside a brokerage in Tokyo July 29, 20

By Chikafumi Hodo

TOKYO (Reuters) - The pension fund for Japan's civil servants is considering changing its ultraconservative investment strategy to allow more of its $80 billion to go into stocks and less into domestic government bonds, people familiar with the matter said.

The move by the Federation of National Public Service Personnel Mutual Aid Associations, which covers 1.24 million active and retired public servants, follows a shift towards riskier investments by Japan's Government Pension Investment Fund, the world's biggest pension fund with $1.2 trillion in assets.

Prime Minister Shinzo Abe is pushing public funds to increase returns as part of measures to revive the economy's fortunes. His growth strategy seeks to mobilize Japan's enormous public savings, such as GPIF and the civil servants' pension fund.

The civil service federation's decision, expected around autumn, also shows the influence of the giant GPIF. Although the broader fund only tweaked its investment strategy, its enormous financial firepower means a potentially big slowdown in investors' purchases of government debt, which is now being bought in massive amounts by the Bank of Japan as part of its aggressive monetary easing.

"The federation is expected to change the portfolio model that is heavily weighted to domestic bonds," one of the sources told Reuters. "It is considering revising its investment strategy in a way to take more risks, especially after the change by GPIF."

The federation, which is supervised by the Ministry of Finance's budget bureau, reviews its portfolio every year in principal, said a fund official.

The public fund will take account of major market developments since late last year when it reviews its portfolio, the official said, declining to provide details as the content of the review could be sensitive for financial markets.

PORTFOLIO REVIEW

The civil service fund started working together with a private pension consultant company in June to review its portfolio model, the sources told Reuters.

The review will take account of the rise in domestic equity prices and fall of the yen driven by the reflationary policies of "Abenomics", and could lead to a cut in the nearly 80 percent weighting the fund has in Japanese government bonds and an increase in the 5 percent allotted to domestic shares, they said.

Tokyo shares are up 65 percent and the yen down 20 percent against the dollar since mid-November, when Abe emerged as the likely next prime minister, intent on pulling Japan out of 15 years of deflation and mostly tepid growth.

The GPIF, with $1.2 trillion in assets, in June raised its Japanese stock allocation to 12 percent of its portfolio from 11 percent, while lowering its allocation to Japanese government bonds to 60 percent from 67 percent, the most significant shake-up of its portfolio strategy since the fund was formed in 2001.

The public servants' fund could move in a similar direction, the sources said, although direct comparisons are not possible as the fund invests in some assets such as loans that the GPIF does not invest in.

As of the end of March, the federation had invested 78.8 percent of its 7.8 trillion yen ($79.12 billion) portfolio in domestic bonds, 6.8 percent in domestic equities, 1.2 percent in foreign bonds, 5.3 percent in foreign stocks, 2.7 percent in short-term assets, 2.2 percent in real estate and 3.0 percent in loans.

The government set up a panel last month to review the investment strategy of public funds, which collectively hold more than $2 trillion in assets.

The seven-member panel is discussing ways to improve governance of public funds and consider how to improve returns on investments by raising exposure to risk assets such as equities and foreign assets, as Japan's working population ages and payouts increase.

The panel is scheduled to reach a conclusion by the autumn and aims to implement proposals by April 2015 in line with Abe's growth strategy.

($1 = 98.5900 Japanese yen)

(Editing by William Mallard)

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