Anticipation that the report would recommend that GPIF track the new stock index - which focuses on ROE and corporate governance - for its passive equity investments has already helped some of the 14 stocks that are in the JPX-Nikkei Index 400, but not in the benchmark Nikkei 225 average or the broader Topix.
Seria, operator of a 100 yen-shop chain, has jumped 13 percent in the week since the index was announced, while fast-growing, e-commerce giant Rakuten has risen more than 9 percent, outpacing the 2.7 percent rise in the Topix over the same period.
GPIF may not begin reviewing its asset allocations and investment strategy until the government completes a pension actuarial revaluation in March.
The fund reviews its medium-term strategy every five years based on these revaluations, with next year marking the review for implementation in the financial year from March 2015.
But it may not wait for this process to play out. In June, after a relatively brief eight months, GPIF made the biggest changes to its asset allocations since the fund was formed in 2001. It raised the weighting of Japanese stocks in its core portfolio to 12 percent from 11 percent and cut JGBs to 60 percent from 67 percent.
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"It looks clear that the panel, the Health Ministry and GPIF all think that GPIF should alter its current heavy emphasis on JGBs as the result the money will flow into Japanese stocks and elsewhere," said Daiwa's Shiomura.
Beyond conventional assets
The report is expected to recommend that public funds start baby funds that would be managed separately from the core fund to allow them to take more exposure to riskier assets. These could put money in investments beyond conventional assets such as domestic and foreign stocks and bonds.
Overhauling GPIF's structure, which is important to its ability to make sophisticated investments, will likely take more time. The panel is expected to call for increasing the budgets of Japan's thinly staffed public funds to hire experts and acquire the resources to improve returns.
GPIF is an independent administrative agency, which has to operate under a tight budget and has severe staff limitations compared with large private-sector financial institutions. The fund has fewer than 80 people managing its trillions of yen. Converting it into a government-authorised corporation, like the Bank of Japan, would provide more flexibility, but such a change would require time and political debate over legislation.
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The sources said the panel wants GPIF to consider diversifying into liquid asset classes, such as real estate investment trusts, when it reviews it portfolio from April. But investment in illiquid asset classes such as private equity, infrastructure and property would have to await the organisation's overhaul.
This could mean a setback for GPIF after it made its initial moves towards investing in private equity in October, when it hired a veteran portfolio manager and moved several staff to focus on the asset class.