March 9, 2014 2:00 am JST

Japan public pension fund to invest in developing countries through World Bank

TOKYO -- Japan's Government Pension Investment Fund plans to invest in infrastructure projects and unlisted companies in developing countries, most likely in Southeast Asia and Africa, in partnership with the World Bank, according to sources.

     The move is aimed at reaping higher returns through such investments, though there will be higher risks than found in its conventional portfolio.

     The GPIF, which manages Japan's national pension program and corporate employee pension schemes, has about 130 trillion yen (about $1.2 trillion) under its management, making it one of the world's largest institutional investors.

     It will start making investments in developing countries at some point this year at the earliest, in partnership with the International Finance Corporation, a World Bank group organization, and the Development Bank of Japan.

     As investment targets, the IFC will select companies engaged in developing nations' infrastructure projects as well as unlisted companies with long-term growth potential. Both the GPIF and the DBJ will then invest in selected companies through investment trusts. The GPIF expects to make investments in infrastructure-related companies, such as power, water and port management firms. It is also expected to participate in project financing schemes.

     The GPIF is expected to invest anywhere from tens of billions yen up to hundreds of billions of yen.

Aiming higher

The GPIF will face higher risks of incurring losses if its investments fail, compared with the current method of managing its assets in domestic and foreign stocks and bonds. But it could also expect returns in the upper 10% level depending on given investments.

     This will be the first time the GPIF will make high-risk, high-return investments in developing countries on this scale. The IFC has so far worked with global pension funds and sovereign wealth funds in offering investments and loans to developing countries.

     Since its establishment in fiscal 2006 through fiscal 2012, the GPIF has reported an average investment return of 1.5%. Last November, a government panel of experts proposed a review of the GPIF's asset management methods to find way to ensure higher returns.

(Nikkei)

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