The world's biggest pension fund posted a $52 billion loss last quarter as stocks tumbled and the yen surged, wiping out all investment gains since it overhauled its strategy by boosting shares and cutting bonds.
Japan's Government Pension Investment Fund lost 3.9%, or 5.2 trillion yen ($52 billion), in the three months ended June 30, reducing assets to 129.7 trillion yen, it said in Tokyo on Friday. That erases a 4.1 trillion yen investing return for the previous six quarters starting October 2014, the month it decided to put half its assets into equities.
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The quarterly decline follows a 5.3 trillion yen loss in the fiscal year through March, the worst annual performance since the global financial crisis. After benefiting from a surge in Japanese equities and a weaker yen earlier in Prime Minister Shinzo Abe's term, GPIF has posted losses as domestic stocks tumble and gains in the currency reduce the value of overseas assets. Still, for Sumitomo Mitsui Trust Bank Ltd., that's no reason to veer from the current approach.
“Since its investments are tied to market moves it's natural that this would happen, and there's no point looking at it with a short-term view,” said Ayako Sera, a Tokyo-based market strategist at the bank. “GPIF is so big that its losses look huge, even though the fluctuations in its investments just mirror the market.”
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The fund's Japanese shares sank 7.4% in the period as the benchmark Topix index lost 7.5%. More than 80% of GPIF's local equity investments are passive. Overseas stocks lost 7.8%, while foreign debt fell 8%, as the yen surged 9.1% against the dollar. The only asset class to post a profit was domestic bonds, which rose in value as the Bank of Japan's negative interest rates sent yields lower.
“We invest with a long-term view,” Norihiro Takahashi, president of the pension fund, said in a statement Friday. “Even if market prices fluctuate in the short term, it won't damage pension beneficiaries. We are also strengthening risk management and continuing to hire experts.”
GPIF held 21% of investments in local stocks at the end of June, and 39% in domestic bonds. Overseas equities made up 21% of assets, while foreign debt accounted for 13%. Alternative investments were 0.05% of holdings, down from 0.06% at the end of March. GPIF targets allocations of 25% each for Japanese and overseas stocks, 35% for local bonds and 15% for foreign debt.
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In a briefing about the results, GPIF official Shinichiro Mori said he was more positive about the outlook for returns this quarter. The Topix has climbed 3.4% since the start of July.
“The U.K.'s decision on Brexit was a surprise for the market, but it has mostly priced that in and calmed down,” Mr. Mori said. “Stocks are on the verge of rebounding. Still, the yen is continuing to trade sideways against the dollar, so we are cautiously watching that.”
