EDITORIAL: Doubling GPIF Stock Investment Allocation Targets Is Not without Risk

The Daily Yomiuri (Toyko, Japan), November 8, 2014 | Go to article overview

EDITORIAL: Doubling GPIF Stock Investment Allocation Targets Is Not without Risk


Although it is necessary to find ways to manage the nation's public pension reserves more profitably, to ensure the sustainability of the pension system, top priority must be placed on the safety of the pension fund assets.

The Government Pension Investment Fund, the independent administrative institution in charge of managing the reserves for public pension plans, has decided on a set of new investment allocation targets for its assets.

The GPIF has raised its target for holdings in domestic and foreign stocks to 25 percent each, about double the current holding allocations of 12 percent each in its investment portfolio.

On the other hand, it has lowered markedly its weighting of domestic bonds, including government bonds, to 35 percent from the current level of about 60 percent.

Given the current ultra-low interest rate situation, it is understandable that the GPIF hopes to diversify its investment allocations by modifying its conventional government bond-centered fund management.

In the wake of the GPIF announcement on Oct. 31, expectations are surging in the stock market for a huge influx of cash from the government-run pension fund, the outstanding reserves of which stand at 130 trillion yen. Coupled with the Bank of Japan's decision earlier the same day to further ease its monetary policy, the GPIF's move has had the effect of pushing up stock prices, and there can be no doubt that the public pension fund's action is positive for revitalizing the securities market.

It must never be forgotten, however, the management of the pension reserve funds, over the long term, may be confronted sometime in the future with risks such as a nosedive in stock prices.

The public pension fund reserves -- cash from pension insurance revenues that is not immediately required for the payment of pension benefits -- are all-important funds for investment to prepare for the payment of future pension benefits.

Many people may be concerned that the GPIF could suffer huge losses in the event of an investment failure. A state of affairs in which pension benefit payments for future generations could shrink by a wide margin must be avoided by all means.

Need for organizational change

The reallocation of the GPIF's investment targets should also be undertaken scrupulously and in stages, instead of hastily raising the weighting of stock investments to a new level. …

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