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Japan GPIF tweaks rules to avoid forced share selling
April 1, 2014 / 11:51 AM / 3 years ago

Japan GPIF tweaks rules to avoid forced share selling

TOKYO, April 1 (Reuters) - Japan's public pension fund, the world's biggest, said on Tuesday it will employ its asset allocations more flexibly, allowing it avoid having to sell into rallies or buying on declines.

The $1.26 trillion Government Pension Investment Fund is nearing the upper limit of its Japanese stock holdings and, under current rules, would have to sell shares if market rises push the value of its holdings over the limit.

GPIF will "flexibly apply" the maximum allowed variance from the allocation guidelines, the fund said in its annual business plan. As a result, a GPIF official told Reuters, the fund will not have to buy or sell stocks or bonds if the value of the holdings bump up against the assigned limits.

The fund will refrain from rebalancing even if the weighting of an asset class exceeds the limit, if such position-trimming goes against the direction of the fund's new investment strategy, to be finalised during the business year that began on Tuesday, the official said.

The loosening of the allocation guidelines "is because there is a high probability that the weighting of domestic shares will be increased", said Masatoshi Kikuchi, chief equity strategist at Mizuho Securities Co.

Prime Minister Shinzo Abe is pressing the giant fund to shift some of its money away from low-yielding government bonds and into stocks and other riskier investments, as part of his drive to revitalise the economy after 15 years of deflation and tepid growth.

The fund appears headed in that direction, with an advisory panel saying last month that GPIF need not cling to the safety and paltry yields of government bonds.

As investors anticipate the increased share purchases by the giant fund, they could push up equity values beyond GPIF's limit. GPIF's core allocation requires 12 percent, plus or minus 6 points, of assets to be invested in Japanese stocks. The share is now 17.2 percent.

Even if that weighting rises above the 18 percent limit, GPIF will now be able to avoid selling if it is considering raising its allocation and if the fund's 10-member Investment Committee agrees. The same will apply to Japanese government bonds, foreign stocks and foreign bonds.

The official said GPIF had started reviewing its new investment strategy. Last month, GPIF received an investment target of 1.7 percent over the nominal wage increases from an advisory panel of the Health Ministry.

Founded in 2001, the fund conducted the most significant shake-up to its investment strategy last June when it revised its allocation targets.

Besides equities, GPIF targets domestic bonds at 12 percent plus or minus 6 points, foreign bonds at 11 percent plus or minus 5 points, foreign stocks at 12 percent plus or minus 5 points and short-term assets at 5 percent.

$1 = 103 Yen Reporting by Chikafumi Hodo; Editing by William Mallard

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