World’s Largest Pension Fund Loses $136 Billion in Three Months

(Bloomberg) -- The world’s biggest pension fund posted a record loss after a global equity rout last quarter pummeled an asset class that made up about half of its investments.

Japan’s Government Pension Investment Fund lost 9.1 percent, or 14.8 trillion yen ($136 billion), in the three months ended Dec. 31, it said in Tokyo on Friday. The decline in value and the rate of loss were the steepest based on comparable data back to April 2008. Domestic stocks were the fund’s worst performing investment, followed by foreign equities. Assets fell to 150.7 trillion yen at the end of December from a record 165.6 trillion yen in September.

While stocks helped the GPIF generate returns for the previous two fiscal years, December’s global rout underscored the risks facing the fund since it revamped strategy in 2014 to accumulate stocks and pare domestic bonds. The GPIF may have little choice but to invest in equities as fixed-income yields, especially those of Japanese government debt, are too low, said Naoki Fujiwara, chief fund manager at Shinkin Asset Management Co. in Tokyo.

“It makes a sense for the GPIF to hold some risk assets in this environment because yields are low globally and bond investments don’t give good returns,” Fujiwara said. “Yet from a pensioner’s point of view, it takes too much risk on its investments.”

World’s Largest Pension Fund Loses $136 Billion in Three Months

More than $10 trillion in equity value was wiped out from the global markets last quarter as an ongoing trade spat between the U.S. and China raised concern over a slowdown in growth.

The Topix index plunged 18 percent in the October-December period, the biggest quarterly decline since 2008, while the S&P 500 Index dropped 14 percent, the most since 2011. Japan’s currency strengthened 3.7 percent against the dollar in the quarter.

Investment incomeReturn
Domestic bonds+424.2 bln yen+1%
Domestic stocks-7.7 trln yen-17.6% (worst since Oct-Dec 2008)
Foreign bonds-718.2 bln yen-2.7%
Foreign stocks-6.9 trln yen-15.7% (worst since July-Sept 2011)

Shingo Ide, the chief equity strategist at NLI Research Institute in Tokyo, points out that the GPIF’s long-term performance is more important than quarterly moves. GPIF’s cumulative investment return since fiscal 2001 was 56.7 trillion yen for an annualized 2.7 percent gain.

“There’s no need to be pessimistic just because GPIF would incur loss on its investment on a quarterly basis,” Ide said. “For pension funds, it’s more important to focus on how they secure long-term returns rather than their quarterly performance.”

Still, with about half of its assets in domestic and foreign equities, the GPIF’s performance may be in danger of declining as concerns about the U.S.-China trade war and the U.K.’s departure from the European Union increase the risk of a global economic slowdown, according to Hidenori Suezawa, an analyst at SMBC Nikko Securities Inc. in Tokyo.

“Trade frictions between the U.S. and China haven’t been fully solved yet and there’s a possibility that the Brexit problem may be prolonged,” Suezawa said. “We can’t be optimistic about the investment performance toward March.”

In the October-December quarter, investors’ risk aversion increased on concerns over the outlook for the global economy and corporate earnings, GPIF President Norihiro Takahashi said in a statement on Friday.

Asset allocation as percent of total
Domestic bonds28.2%
Domestic stocks23.7%
Foreign bonds17.4%
Foreign stocks24.3%
Short-term assets6.4%
  • Alternative assets accounted for 0.21 percent of GPIF holdings, below the allowable limit of 5 percent

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