In a much-awaited portfolio reshuffle, the ¥127.26 trillion ($1.13 trillion; €904 billion) Government Pension Investment Fund (GPIF) has announced an allocation of 5 percent to alternatives. This is the first time a policy on alternative investment has been stated in GPIF’s policy asset mix and is being included in order to achieve efficient investments by diversification, Japan’s largest public pension stated in a release published on its website late Friday.
Under the new plan, a dedicated in-house team will be developed to invest a maximum of 5 percent of the total investment portfolio in alternatives, which includes real estate, private equity and infrastructure. However, there will be no separate category for alternatives. Instead, “infrastructure, private equities, real estate or other assets, determined upon deliberation by the investment advisory committee, will be classified as domestic bonds, domestic stocks, international bonds or international stocks, depending on their risk and return profiles,” according to the statement. No information was provided on the proposed investment spilt between the different alternative investment classes.
GPIF has not made any investments in real estate so far. In March, it made its first allocation to alternatives, entering into a partnership with Development Bank of Japan and the Ontario Municipal Employees Retirement System to invest in infrastructure assets in developed countries. Also, at the beginning of the year, the pension set up an alternatives unit comprising four professionals to invest in alternatives. Tokihiko Shimizu, GPIF’s director-general, told PERE that it intends to hire more people and eventually increase the team size to 10.
As part of the portfolio rejig, GPIF has significantly raised its exposure to equities as it seeks to move away from low-yielding Japanese bonds to riskier higher-yielding investments. An investment target of 25 percent has been set for both domestic and international equities, up from 12 percent allocated to each in 2013. In exchange, it has slashed its domestic bond holdings from 60 percent to 35 percent.
Since June, a team appointed by the Ministry of Health, Labor and Welfare has been conducting a review of GPIF’s policy asset mix. The addition of alternatives by GPIF is expected to provide an impetus to other Japanese pension plans to increase their exposure to real estate. Since the global financial crisis, most pensions have been reluctant to allocate to domestic and overseas real estate assets.