From the risk-seeking actions of the world’s biggest pension fund to the unique approach to corporate governance and stewardship, Japan’s markets are being transformed by Abenomics. Chris Panteli reports.
“In the typical Japanese corporate view of stakeholder capitalism, shareholders were ranked so far below customers, employees and global society in general, that they had become all but invisible. Things are, however, changing.”
Dan Mannix
Having secured victory in Japan’s snap election late last year, Japan’s prime minister Shinzo Abe has now set about implement the “third arrow” of Abenomics with far less obstruction.
This is the final stage of the much-heralded project set out in December 2012, aimed at lifting Japan from its decades-long state of stagnation using his “three arrows” of fiscal stimulus, monetary easing and structural reforms.
So far the arrows of Abenomics have hit most of their intended targets, with one piercing the skin of Japan’s sleeping giant, the Government Pension Investment Fund (GPIF), and sending it roaring into action. With ¥128.6trn ($1.25trn) of assets under management, the GPIF is not only the world’s biggest pension fund but also the largest public sector investor anywhere. Despite its mountains of wealth however, the fund has been extremely conservative with its investment strategy: up until the advent of Abenomics, around two thirds of assets were in Japanese government bonds (JGBs) and when it did invest in the markets it did so passively.
Abe has been keen to see the GPIF finally flex its muscles and help revive Japan’s economy, however, and that means taking more risk. Over the past two years, the fund has reduced its holdings in JGBs from 62% of the portfolio in March 2013 to 49.6% as of Q3 2014, the first time its allocation to JGBs has made up less than half of assets. The resulting ¥8trn has instead been invested in local and foreign shares, with plans for allocations to alternatives such as private equity and infrastructure already underway.
Threadneedle Investments Japanese Equity fund manager Sarah Williams is quick to point out however that this is far from a quick push for growth. Instead, the move should be seen as the GPIF’s rational response to the current economic environment.
She says: “It’s not as though they’re making a direct switch from JGBs to Japanese equities. It’s more a diversification of the whole portfolio. It’s rational, and that’s the big thing about this: it was rational, when Japan was in deflation, to have a very high allocation to JGBs.
“Nobody would want it to look like it was the government saying to the GPIF: ‘You must buy more equities’. If Japan comes out of deflation it’s more rational to have a higher allocation to equities.”
While the move away from JGBs is a radical step for the fund, it is still very much in the low end of the target ranges set out for risk asset allocation, with much still to be done.
The GPIF is also undergoing structural changes beyond the portfolio. A recent National Diet session was convened to discuss the GPIF Reform Act, outlining plans to broaden the number of decision-makers within the fund.
“Authority for the GPIF’s decision-making is going to be under the auspices of a panel of several directors rather than the current system where sole responsibility rests with the president,” the Diet briefing notes add.
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