Japan Weighs Boosting Alternative Investments at $2 Trillion GPIF to Fund ‘Strong Japan’

Japan’s Sanae Takaichi administration is considering a plan to further diversify the portfolio of the Government Pension Investment Fund, the world’s largest public pension fund.

The Nikkei reported on July 12 that the government will include a larger allocation to alternative investments by GPIF in a new financial strategy aimed at securing funding for its “Strong Japan” agenda.

Under the plan, the government would gradually raise GPIF’s allocation to alternatives such as private equity and real estate toward the current 5% ceiling. Alternative investments include unlisted equities, infrastructure and real estate, rather than traditional assets such as listed stocks and bonds.

GPIF held 5.2067 trillion yen ($35.3 billion) in alternative assets as of the end of March, equal to 1.7% of its total portfolio. Although the ceiling is set at 5%, the actual allocation has stayed around 2% in recent years. The plan is to lift that share toward the cap.

GPIF managed about 300 trillion yen in assets last year, or roughly $2 trillion. Any change in its investment policy would likely draw close attention from global investors.

The move appears aimed at helping finance Japan’s “Honebuto” basic economic and fiscal policy guidelines, which call for at least 370 trillion yen in public and private investment across 17 growth-strategy sectors by 2040. The idea is to broaden the investment scope of public pension funds and have them help spur more domestic investment.

The Nikkei said the Ministry of Health, Labour and Welfare, which evaluates public pension investment performance, may also consider raising the 5% ceiling itself if GPIF’s allocation to alternatives approaches that limit.

Finance Minister Satsuki Katayama recently said the government would seek ways to help households and pension funds such as GPIF invest more in Japanese financial assets.

After those remarks, Japan’s 10-year government bond yield, which had climbed to 2.9%, its highest level in about 30 years, turned lower last week. Japanese government bonds and the yen also strengthened on expectations of inflows from GPIF.

Shin Yong-hyun, Hankyung.com reporter yonghyun@hankyung.com