Japan’s JPY196.6 trillion (US$1.42 trillion) Government Pension Investment Fund (GPIF) weathered the geopolitical turmoil that rocked markets in the wake of the Russian invasion of Ukraine, reporting a mere 1.1% decline in the portfolio in the last quarter of FY2021/22, corresponding with Q1 of 2022.
The fund’s full-year return was a solid 5.4%, adding JPY10.1 trillion to its total AUM, assisted by 18.5% growth in foreign equities, 2.1% growth in domestic equities and a 2.3% rise in foreign bonds, while domestic bonds returned -1.0%. In the final quarter of the financial year, the US dollar’s 6% gain against the yen helped mitigate the impact of market turbulence on performance.
The world’s biggest public pension fund has not been able to escape the effects of the Ukraine crisis. It has been selling Russian assets since the invasion and has marked down some values to negligible levels, down from JPY91 billion (US$670 million) at end-March 2021. However, it is stuck with some shareholdings in Sberbank, Gazprom and Lukoil due to trading restrictions on foreign investors. Holdings of Russian government bonds dropped to RUB3.8 billion in March, down 75% from RUB15.1 billion a year earlier, but were only a small part of its global portfolio.
A large portion of GPIF’s portfolio - more than 75% of foreign bonds and about 87% of foreign stocks - is passively managed. However, this is changing as the fund is looking towards more active management and has become more selective about its exposures.
CIO Eiji Ueda noted in the annual report that the fund will diversify into active equity funds, with a particular interest in North America, while at the same time cutting allocations to currency-hedged US fixed income in response to the yen’s depreciation against the US dollar.
In March, GPIF announced it had allocated JPY760 billion (US$6.2 billion) to a new ESG index, the FTSE Blossom Japan Sector Relative index, which assesses risks and opportunities in relation to climate change. At end-March, the Tokyo-based fund reported a total of JPY10.9 trillion to seven ESG indexes tracking domestic and international stocks, which was the equivalent of nearly 12% of its total equity allocations.
The Japanese investor is not stopping at bolstering its ESG credentials, but is looking to play an active role in domestic venture capital. This month, GPIF announced it would begin investing in Japanese startups, according to Nikkei. The reported intention is to give a boost to the development of Japanese startups. According to Nikkei, Mitsubishi UFJ Trust and Banking, which is responsible for managing some of the GPIF's funds, signed an agreement to invest in a startup fund run by Globis Capital Partners at the end of May.
