Japan pension fund boosts allocation to stocks

Chikafumi Hodo

The $75 billion pension fund for Japan's civil servants said on Thursday it has lowered allocations to Japanese bonds and raised weightings to domestic equities in an easing of its ultraconservative investment strategy.

The Federation of National Public Service Personnel Mutual Aid Association, which covers 1.24 million active and retired public servants, has been under pressure from the government for a bolder stance in its bond-heavy portfolio.

In November, a panel appointed by the year-old administration of Prime Minister Shinzo Abe suggested that the federation, the Government Pension Investment Fund (GPIF), and other public pension funds - which collectively hold more than $2 trillion in assets - review their portfolios under a drive to boost returns to support Japan's rapidly ageing population.

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Sha Ying | CNBC

The pension fund of the federation, known by its Japanese initials KKR, held 7.8 trillion yen ($74.80 billion) in assets as of March.

The shift in the federation's investment strategy is in line with a move towards more aggressive investing by GPIF, the world's biggest pension fund with $1.2 trillion in assets.

In June, GPIF made its biggest asset allocation shift since its inception in 2001, boosting its target share for stocks while lowering its government bond weighting.

The civil service fund started working with a private pension consultancy in the summer to review its asset allocation strategy, taking into account a surge in Japanese stocks and a fall in the yen.

The federation's investment committee members recommended on Oct. 18 that the fund lower the weighting of Japanese government bonds in its core portfolio.

KKR's 16-member governing council decided on Thursday to accept the investment committee's recommendation.

The federation lowered the core weighting of yen bonds to 74 percent from 80 percent, while raising the weighting of domestic stocks to 8 percent from 5 percent.

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The federation will allow the range of allocations to deviate by 16 percentage points from the core weighting for yen bonds, wider than the previous 12 points.

The federation also will allow the range of allocations to deviate by 5 percentage points from the core for domestic stocks, up from 3 points previously.

It has also raised core allocations to foreign bonds to 2 percent from zero and lifted allocations to foreign stocks to 8 percent from 5 percent.

The civil service fund kept its weighting unchanged for short-term assets and real estate at 4 percent and 2 percent respectively, while it has lowered allocations to loans to 2 percent from 4 percent.

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