World Economy

World’s Biggest Fund Gains $21b

The profit comes after the fund lost more than 15 trillion yen over the previous three quartersThe profit comes after the fund lost more than 15 trillion yen over the previous three quarters

The world’s biggest pension fund posted its first profit in four quarters as stocks rebounded, providing some respite for the Japanese state money manager after critics lambasted it for taking on too much risk.

The Government Pension Investment Fund returned 1.8%, or 2.4 trillion yen ($21 billion) in the three months ended Sept. 30, boosting assets to 132.1 trillion yen, it said in Tokyo on Friday. Domestic and foreign equities added 3.1 trillion yen as they recovered from their Brexit rout, outweighing a loss of 706.9 billion yen on bond holdings, Bloomberg reported.

The profit comes after the fund lost more than 15 trillion yen over the previous three quarters, wiping out all investment gains since it overhauled its strategy in 2014 by boosting shares and cutting debt. As Japanese stocks extend their advance and U.S. equities climb to fresh records after Donald Trump’s election win, the prospect of further strong performance may help quash complaints at home that GPIF’s investing approach is too dangerous.

“It’ll take some pressure off,” said Naoki Fujiwara, chief fund manager at Shinkin Asset Management Co. in Tokyo. “This quarter will probably be good too. But before we all get too excited, we need to be wary about whether this can continue for long.”

Prime Minister Shinzo Abe said in parliament in September that the fund’s short-term losses aren’t a problem for Japan’s pension finances. GPIF’s purchases of stocks are a “gamble”, opposition lawmaker Yuichiro Tamaki said in an interview that month, after an almost 20% drop in Japan’s Topix index in the first half of the year was followed by a 7.3% one-day plunge after Britain’s shock vote to leave the European Union.

 Asset Weightings

Domestic bonds, the only asset class to deliver a profit in the fiscal year ended March, posted a 1.3% loss in the three months through September after yields rebounded. That reduced Japanese debt to 36% of holdings, compared to a target allocation of 35%. Yields on 10-year bonds climbed to minus 0.085% at the end of September from negative 0.23% at the end of June.

Local stocks made up 225 of GPIF’s portfolio at the end of September, while foreign shares accounted for 21%. That compares with targets of 25% for each. GPIF delivered a 7.1% gain on domestic stocks, beating a 6.2% rebound in the Topix during the period.

Returns from overseas assets were muted by a stronger yen, which rose 1.8% against the dollar in the quarter. GPIF’s international stocks gained 3.7%, while foreign bonds lost 0.2% as yields rose amid speculation the US will tighten borrowing costs.

Alternative assets accounted for 0.05% of GPIF’s holdings, well below the allowable limit of 5%. Toyota Motor Corp., Apple Inc. and Microsoft Corp. were the fund’s top stock investments at the end of March, while Japanese government bonds, US Treasuries and Italian debt were the largest bond holdings, GPIF said.

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