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World's largest pension fund posts record quarterly loss

Japan's GPIF pays price for exposure to equities amid global stock slump

Japan's Government Pension Investment Fund had nearly $1.4 trillion in assets at the end of 2018. (Photo by Maho Obata)

TOKYO -- Japan's Government Pension Investment Fund reported Friday a negative investment return of more than 14.8 trillion yen ($135 billion) for the October-December period, its biggest quarterly loss since it started putting pension money into the market in fiscal 2001.

Falling share prices around the world took a toll amid such uncertainties as the Sino-American trade war and political developments in Europe. The GPIF's cumulative returns of 56.7 trillion yen enable it to keep the pension system running despite the heavy loss.

The fund moved in 2014 to double the total weighting of domestic and foreign equities in its portfolio to 50%. Today, two-thirds of its assets under management are in Japanese equities or foreign-currency-denominated vehicles. Fluctuations in stock markets and exchange rates have come to wield significant sway over investment performance, which boosted returns when markets were strong but is now working against the fund.

Quarterly losses topped 7.6 trillion yen for Japanese stocks and 6.8 trillion yen for foreign stocks. Foreign bonds handed the GPIF a loss of over 700 billion yen. Domestic bonds were the only asset category where it logged positive returns, at more than 400 billion yen.

There have been calls for the fund to shift back to its bond-heavy old asset mix. But with Japanese long-term interest rates hovering around zero, opportunities to profit from bonds are limited.

To help insulate itself from market swings, the fund has sharpened its focus on so-called ESG investing, which considers environmental, social and governance factors such as greenhouse gas emissions and opportunities for women. Businesses with proactive stances on sustainability are regarded highly by the market and tend to generate stable returns.

The GPIF is the world's biggest pension fund, with assets exceeding 150 trillion yen at the end of December.

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