Japan’s JPY200.1 trillion (US$1.45 trillion) Government Pension Investment Fund (GPIF) continued to weather geopolitical turmoil and a high inflation environment, notching up a 1.5% return for FY2022 (to end-March 2023) from a highly liquid portfolio that was boosted by strong performance in domestic public equity.
The fund added nearly JPY3 trillion to its total AUM, assisted by 5.5% growth in domestic equities and 1.8% in foreign equities, but this growth was tempered by a -1.7% return in domestic bonds and -0.1% in foreign bonds.
GPIF’s policy asset allocation is evenly distributed between foreign and domestic bonds and equities, but in FY2022 it was overweighted to domestic bonds. In the final quarter of the financial year, which corresponds with the first quarter of the calendar year, all asset classes were reporting a positive performance, marking the end of consecutive quarterly losses that began in the fourth quarter of FY2021. The quarter saw the fund post an investment gain of JPY10.3 trillion (US$71.8 billion) in January-March, ending a four-quarter losing streak.
GPIF’s foreign stock portfolio posted a quarterly gain of 8.2% in Q4 of its financial year, while its Japanese stock portfolio gained 7.0%. Over the same period, the S&P500 rose 7.0% while the 225-issue Nikkei stock average increased 7.5%, indicating its holdings of foreign equities beat the index by 1.2% while domestic equities underperformed by 0.5%.
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. It is also looking to ramp up its allocations to private equity (0.2% of AUM in FY2022), real estate (0.5%), and infrastructure (0.7%).
In its annual report, GPIF announced it had committed US$500 million to Blackstone Real Estate Partners X as its real estate portfolio increased from JPY773 billion to JPY919 billion (US$6.7 billion). GPIF already used three fund-of-funds managers to run its real estate exposure, including a domestic-focused mandate with Mitsubishi UFJ Trust Bank, a global mandate with CBRE Investment Managers, and a core mandate with LaSalle Investment Management.
It is also increasing private equity exposure to improve yield based on its multi-manager strategy. In FY2022, it made at least three commitments, including US$400 million to TAAssociates’ TA XV, US$750 million to Hellman & Friedman’s Capital Partners XI and US$500 million to Blackstone’s Real Estate Partners X. The annual report stated that from FY2022, it started invested in LPs through in-house management to simplify oversight and quickly gathering information on investment targets. It is looking to follow the same strategy in infrastructure with an initial focus on larger funds with a strong track record before looking at co-investments and portfolio building.
GPIF’s calendar year results for 2022 – with a return of -4.9% - compared favourably with Norway’s sovereign wealth goliath NBIM, which returned -14.1%. In foreign equities, GPIF’s return was -6.5% and NBIM reported -15.4%, while in foreign bonds GPIF scored -5.4% and NBIM reported -12.1%. Compared side-by-side as massive global equities investors, the Japanese trounced the Norwegians by a wide margin.