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Largest global pension fund posts record gain as stocks rise

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(Bloomberg) — Japan’s $1.1 trillion retirement fund posted its best annual return on record, buoyed by gains in stocks and a weaker yen.

The Government Pension Investment Fund delivered a 12 percent return in the year ended March 31, the most since its 2001 inception, it said in a statement. Assets under management swelled to 137.5 trillion yen ($1.1 trillion), also a record, as domestic stocks gained 30 percent. The yen’s 14 percent decline against the greenback helped overseas equities provide a 22 percent return, while local bonds made 2.8 percent.

GPIF’s asset mix is closing in on the targets outlined in a radical overhaul in October, when the fund vowed to cut its Japanese bond allocation to 35 percent and more than doubled its goals for equities. Its performance underscores the argument for increasing risk assets as it seeks to meet the pension needs of the world’s oldest population.

“It looks like they won’t have to buy actively from now on,” said Kenji Shiomura, a Tokyo-based senior strategist at Daiwa Securities Group Inc. “They will probably just add to holdings when the market falls. The good performance is to be expected given the market was doing well.”

GPIF had 39 percent of its investments in domestic debt at the end of March, a new low, and a combined 43 percent in global equities, according to its statement.

The fund targets 25 percent each for Japanese and overseas stocks and 15 percent for foreign debt. Its current holdings in each category were within deviation limits, suggesting its asset managers now face minimal pressure to aggressively shift investments.

Abenomics Payoff

GPIF’s growing pile of equities is benefiting from Prime Minister Shinzo Abe’s efforts to revive Japan’s economy through monetary stimulus and structural reform. A weaker currency has helped propel company earnings, while also boosting the value of the fund’s foreign investments.

The Topix gained 28 percent in the fiscal year through March 31, while an index of Japanese government bonds rose 3 percent. GPIF’s return from local stocks was the most since a 50 percent gain in the year ended March 2006.

“We were able to get some good investment results,” Takahiro Mitani, GPIF’s 66-year-old president, wrote in the fund’s annual report. “Our new portfolio is more diversified.”

Foreign equities and bonds delivered smaller annual gains than the previous year, while the return on Japanese debt increased from 0.6 percent. On a quarterly basis, the fund returned 2.1 percent in the period through March, compared with 5.2 percent in the previous three months.

Linkers, Infrastructure

GPIF started investing in inflation-linked bonds last year, and owned 867 billion yen of such debt at the end of March, it said. The fund’s infrastructure investments posted a loss of 700 million yen due to fluctuations in the exchange rate, GPIF said.

Since March 31, global equities have slipped amid concern about Greece’s debt crisis and the risk of China’s stock slump curbing economic growth.

“We take a long-term view,” Shinichirou Mori, director of the planning department at GPIF, said at a briefing in Tokyo. “If there are real structural problems, we’ll consider reviewing the portfolio. But our strategy is based on the risk of domestic yields rising, and so far that situation hasn’t changed.”