Japan public pension wants one fund

TOKYO (Reuters) - The head of Japan's public pension fund on Tuesday rejected a proposal to split the $1.37 trillion fund in two in an attempt to achieve higher returns, saying such a move would be inappropriate and inefficient.

Splitting the Government Pension Investment Fund (GPIF), the world's largest, into two -- one for safe assets and one seeking higher returns -- was suggested by a government report last week.

But having two asset management bodies would require more staff and raise costs, Takahiro Mitani, president of the fund, told the Reuters Japan Investment Summit on Tuesday.

"We are managing about 120 trillion yen with about 80 people. If we compare that with other public pension funds overseas, we are highly efficient," Mitani said.

The GPIF, whose assets under management are greater than India's gross domestic product (GDP), currently entrusts about 90 percent of its assets to private asset managers.

The GPIF holds about two-thirds of its assets in yen bonds, but does not see any need to change this strategy despite growing concern about sovereign debt risks, especially after the euro-zone crisis.

Japan's massive public debt can still be financed within the country by domestic banks and other institutional investors, said Mitani, a former Bank of Japan executive director who became the head of the fund in April.

The GPIF considers Japanese government bonds (JGBs) as a good asset and the country's current ultra-low interest rate policy will help, Mitani said.

The Bank of Japan is expected to maintain the current ultra-low interest rate policy for two to three years, which should keep JGB yields low, the former central banker said.

"There is no immediate need to change our allocation target for yen bonds," Mitani said.

The GPIF invests in conventional asset classes, with its target portfolio calling for a 67 percent allocation to domestic bonds, 11 percent to domestic stocks, 9 percent to foreign stocks, 8 percent to foreign bonds and 5 percent in short-term assets.

SAFE ASSETS DESIRABLE

The GPIF's investment strategy has been criticized for being too conservative by some politicians, including a key government minister.

Mitani said he thinks the GPIF should invest in safe assets rather than new asset classes, but added the fund is constantly looking at the possibility of diversifying its investments.

"We have to focus in safe assets. I don't think it's appropriate to take a big risk in investments," he said.

The GPIF has sold some of its assets this financial year, which began in April, to raise cash to pay pensions.

Mitani declined to comment on the details of the sales, which caused little market impact.

The GPIF is a major force in financial markets, especially in domestic bonds and market participants closely follow the fund's moves.

(Reporting by Chikafumi Hodo; Editing by Erica Billingham)

($1=89.38 yen)