World's biggest pension fund loses US$52 billion in stock rout

TOKYO (BLOOMBERG) - The world's biggest pension fund posted a US$52 billion (S$70.3 billion) loss last quarter as stocks tumbled and the yen surged, wiping out all investment gains since it overhauled its strategy by boosting shares and cutting bonds.

Japan's Government Pension Investment Fund lost 3.9 per cent, or 5.2 trillion yen (S$70.3 billion), in the three months ended June 30, reducing assets to 129.7 trillion yen, it said in Tokyo on Friday. That erases a 4.1 trillion yen investing return for the previous six quarters starting October 2014, the month it decided to put half its assets into equities.

The quarterly decline follows a 5.3 trillion yen loss in the fiscal year through March, the worst annual performance since the global financial crisis.

After benefiting from a surge in Japanese equities and a weaker yen earlier in Prime Minister Shinzo Abe's term, GPIF has posted losses as domestic stocks tumble and gains in the currency reduce the value of overseas assets. Still, for Sumitomo Mitsui Trust Bank Ltd, that's no reason to veer from the current approach.

"Since its investments are tied to market moves, it's natural that this would happen and there's no point looking at it with a short-term view," said Ayako Sera, a market strategist at the bank. "GPIF is so big that its losses look huge even though the fluctuations in its investments just mirror the market."

The fund's Japanese shares sank 7.4 per cent in the period as the benchmark Topix index lost 7.5 per cent. More than 80 per cent of GPIF's local equity investments are passive. Overseas stocks lost 7.8 per cent, while foreign debt fell 8 per cent, as the yen surged 9.1 per cent against the dollar. The only asset class to post a profit was domestic bonds, which rose in value as the Bank of Japan's negative interest rates sent yields lower.

"We invest with a long-term view," President Norihiro Takahashi said in a statement Friday. "Even if market prices fluctuate in the short term, it won't damage pension beneficiaries. We are also strengthening risk management and continuing to hire experts."

GPIF held 21 per cent of investments in local stocks at the end of June, and 39 per cent in domestic bonds. Overseas equities made up 21 per cent of assets, while foreign debt accounted for 13 per cent. Alternative investments were 0.05 per cent of holdings, down from 0.06 per cent at the end of March. GPIF targets allocations of 25 per cent each for Japanese and overseas stocks, 35 per cent for local bonds and 15 per cent for foreign debt.

In a briefing about the results, GPIF official Shinichiro Mori said he was more positive about the outlook for returns this quarter. "The UK's decision on Brexit was a surprise for the market, but it has mostly priced that in and calmed down," Mr Mori said. "Stocks are on the verge of rebounding. Still, the yen is continuing to trade sideways against the dollar, so we are cautiously watching that."