Summit-GPIF may mull alternative investments

Date: Thursday, July 3, 2008
Author: Chikako Mogi, Reuters.com

TOKYO, July 2 (Reuters) - Japan's public pension fund, the world's largest, said on Wednesday it may consider alternative investments in the future, but it must take into consideration risks, market size and other factors. "We may consider alternative investments based on whether our risk-return improves by expanding investments to various products, and not because we need such investments when we raise our performance target," Takahiro Kawase, president of the Government Pension Investment Fund, told the Reuters Japan Investment Summit.

"Our asset size is so big that we need to take into considration how big a market size is, whether our investment is realistic, risk factors, and whether it will lead to a meaningful investment diversification," he said. The fund has around 150 trillion yen ($1.4 trillion) in total assets. It currently does not invest in alternative products.

"With regards to the possibility (of investing in commodities) in the future, I cannot say at this point that there is no possibility," he said.

Kawase said, however, that GPIF needs to take into account various elements, such as the market's risk-and-return scenario, before deciding to add the asset class to its portfolio.

He said while GPIF needs to start studying the asset class, the commodities market could be too small for it.

At the end of the current fiscal 2008/09, next March, the fund is expected to manage its assets under a model portfolio, where 67 percent will be invested in domestic bonds, 11 percent in domestic stocks, 9 percent in foreign stocks and 8 percent in foreign bonds.

Kawase said the fund's allocations are already more or less in line with the model portfolio.

"Overall, discrepancies are not that big. I don't expect large shifts in allocations," barring high volatility in financial markets, he said.

During the last fiscal year ended in March, GPIF's return on investments fell into negative territory for the first time in five years, as the Japanese stock market tumbled in the wake of financial market turmoil stemming from the subprime crisis.

"We don't invest in subprime-related securitised products, but the sharp fall in Japanese stocks had a big impact," Kawase said.

He said GPIF does not plan to alter asset allocations based on near-term strategies.

The fund measures its performance against a main benchmark index such as the Nomura BPI for domestic bonds, so any change in allocation weighting will accompany changes in these indices, he said.

The fund has become slightly more independent from the government from April 2006 as part of administrative reform and now has greater freedom in its investment planning. (Additional reporting by Michiko Iwasaki; editing by Sophie Hardach)