RetireJapan

Thought I would share this article from the FT about the Japanese pension fund:

https://www.ft.com/content/63aa94db-99f ... 2c67531088

If you can't read it, use the link below, and copy and paste the article address into the top bar (red one) on this page, and click "save":

https://archive.md/

Thank you for the link.

I would like someone at the GPIF to explain how exactly they justify their allocation of:

25% Global Bonds
25% Japanese Bonds
25% Global Equities
25% Japanese Equities

Those are their current figures AFTER a reform. https://www.japantimes.co.jp/business/ ... an-stocks/

The changes the GPIF has made are in the right direction, but the 50% allocation to bonds and particularly the 25% allocation to domestic bonds is almost criminal.

National pension funds are the ultimate long term investor and should be taking equity risk to deliver higher long term returns, they are well capable of withstanding the volatility on the way.

Deep Blue wrote: ↑Fri Oct 11, 2024 4:17 am The changes the GPIF has made are in the right direction, but the 50% allocation to bonds and particularly the 25% allocation to domestic bonds is almost criminal.

National pension funds are the ultimate long term investor and should be taking equity risk to deliver higher long term returns, they are well capable of withstanding the volatility on the way.

Completely agree, but to be fair the pension fund has to deal with stupid headlines like 'pension fund loses x trillion yen' when the market dips even though they didn't sell anything.

RetireJapan wrote: ↑Fri Oct 11, 2024 5:52 am
Completely agree, but to be fair the pension fund has to deal with stupid headlines like 'pension fund loses x trillion yen' when the market dips even though they didn't sell anything.

A few headlines that are fish and chip wrapping the next day or the long term fiscal health of the national pension fund..yeah I know which I think is more important!

They are going to report MtM losses in any equities downturn anyway, so.. if this sort of thinking is prevalent by anyone on their asset allocation committee then they need to be sacked yesterday.....

Tsumitate Wrestler wrote: ↑Fri Oct 11, 2024 4:11 am Thank you for the link.

I would like someone at the GPIF to explain how exactly they justify their allocation of:

25% Global Bonds
25% Japanese Bonds
25% Global Equities
25% Japanese Equities

Those are their current figures AFTER a reform. https://www.japantimes.co.jp/business/ ... an-stocks/

Well, if i had to take a guess, a bunch of old people sat around the table, and couldnt agree, so they agreed to disagree, and allocate 25% everywhere.
Although did i read in the article they used active management. For something that,would be passive.

There could be even more shifts towards active management over time.

What can i say? It kinda goes against everything we keep hearing about.
Now Norways fund, that seems to be going gangbusters, and probably in more with our way of thinking.
https://en.wikipedia.org/wiki/Governmen ... _portfolio
I wonder what would the japanese fund be like if it emulated the Norgegian one.

Bubblegun wrote: ↑Fri Oct 11, 2024 6:32 am
Although did i read in the article they used active management. For something that,would be passive.

They outsource the running of the money - it is split between passive and active managers.

Deep Blue wrote: ↑Fri Oct 11, 2024 4:17 am The changes the GPIF has made are in the right direction, but the 50% allocation to bonds and particularly the 25% allocation to domestic bonds is almost criminal.

National pension funds are the ultimate long term investor and should be taking equity risk to deliver higher long term returns, they are well capable of withstanding the volatility on the way.

I agree. It's all back-rubs and brown envelopes with these types, as you know....

Deep Blue wrote: ↑Fri Oct 11, 2024 7:08 am

Bubblegun wrote: ↑Fri Oct 11, 2024 6:32 am
Although did i read in the article they used active management. For something that,would be passive.

They outsource the running of the money - it is split between passive and active managers.

Thanks for that Deep Blue. That's really interesting. It makes me wonder why they'd go for an ACTIVE management, and not passive in the US, Global funds.
I have no idea why they'd buy Japanese bonds, especially with the return on those, and current inflation. I'd have thought they7d get a much better return the whole lot into US bonds, UK guilts or well, basically anywhere.
I'm not a mathematician, but a return of 0.????something, kinds seems like sticking it in the bank. Even a 20 year japanese bonds seems....chotto.( i wanted to say something more colorful) but pathetic? weak? sad?
Maybe someone could explain their reasoning for japanese bonds, and give me the lightbulb moment. ( i just don't see that as a good investment)

I think the allocation to JGB's is more of a historical artifact, basically it was run super conservatively by the bureaucrats at MLHW who didn't have the knowledge, skills or risk appetite required to manage a large pension fund. Things have improved with the appointment of finance professionals to run it but change takes time in Japan, and they didn't manage to shift the target allocation to the ideal configuration in one go.

For active vs passive, well the majority of active managers add value BEFORE fee's. GPIF will pay a far lower management charge for active money than retail punters like us, and can pay even lower base pay if they put a performance fee on. I would imagine (and this is not a wild guess) that GPIF pays a management fee of 0.15 to 0.25% on the majority of their active funds. They can pay an even lower base (say 0.10%) if they give a performance fee to the manager (say 25% of excess returns).

Of course, active managers often have capacity limits, and GPIF wouldn't be able to allocate their entire capital to active managers - so they tend to put the most of it passive at a fee of a few basis points and then allocate to active managers as and when they find one that has the required track record, capacity and willing to accept the GPIF management fee. They'll also look at correlation between managers and try to pick different styles that have uncorrelated or, ideally, negatively correlated performance streams - i.e. a value and a growth style.

Interestingly GPIF has been paying their passive managers more lately as they require them to participate in active stewardship and engagements with corporates on ESG matters.... this is something that costs time and money and GPIF have been ok to raise the management fee for passive managers who can demonstrate their efforts in this field.