Japan Weighs Raising GPIF Alternative Investments to 5% Cap 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 Japanese government will include a plan to increase GPIF’s allocation to alternative investments in a new financial strategy aimed at securing funding for its “Strong Japan” agenda, the Nikkei reported on July 12.

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

As of the end of March, GPIF held 5.2067 trillion yen, or about $35.4 billion, in alternative investments, equal to 1.7% of total assets. Although the upper limit is set at 5%, the actual allocation has remained around 2% in recent years. The plan is to lift that share to the cap.

GPIF managed about 300 trillion yen, or roughly $2.04 trillion, in assets as of last year, meaning any shift in investment policy would draw close attention from global investors.

The move appears aimed at helping fund the government’s basic economic and fiscal policy plan, known as Honebuto, which calls for at least 370 trillion yen, or about $2.52 trillion, in public- and private-sector investment across 17 growth-strategy sectors by 2040. The broader goal is to expand the investment scope of public pension funds and use them as a catalyst for more domestic investment.

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 alternative-investment allocation 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 risen 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