Japan civil service fund set to up stocks, cut bonds in Nov-sources

Reuters

By Chikafumi Hodo and Takaya Yamaguchi

TOKYO, Oct 28 (Reuters) - The public fund for Japan's civilservants is likely to put more of its $80 billion in domesticstocks and less in Japanese government bonds as soon asNovember, shifting from its ultra-conservative investmentallocation, people familiar with the matter said.

The move is part of Prime Minister Shinzo Abe's push toincrease the investment returns of the nation's $2 trillion inpublic pension funds by trimming their massive weightings ofJGBs and seeking more opportunities in riskier assets.

The investment committee of the Federation of NationalPublic Service Personnel Mutual Aid Association, recommended inmid-October that the fund lower the JGB weighting in its coreportfolio from the current 80 percent and raise the equity sharefrom 5 percent, the sources said.

The federation's 16-member governing council will meet inNovember and is expected to adopt the change suggested by theinvestment committee, they said. Reuters reported in August thatthe federation was considering the change and could implement itin the autumn.

The pension fund of the federation, known by its Japaneseinitials KKR, covers 1.2 million active and retired publicservants.

The change would be in line with a shift towards moreaggressive investing by Japan's Government Pension InvestmentFund (GPIF), the world's biggest pension fund with $1.2 trillionin assets.

Japan decided last year to unify the portfolio allocationsof four public funds - KKR, GPIF, the Pension Fund Associationfor Local Government Officials and the Promotion and Mutual AidCorporation for Private Schools of Japan - by October 2015.

The allocations of the 7.8 trillion yen ($80.13 billion) KKRare furthest from the giant GPIF and so have to change the mostto converge.

It is unclear the exact changes in weightings that KKR willmake.

After making the biggest ever change to its model portfolioin June, GPIF gives a weighting of 12 percent to domesticstocks, 60 percent to domestic bonds, 12 percent to foreignstocks, 11 percent to foreign bonds and 5 percent to short-termassets.

The federation, which is supervised by the Ministry ofFinance's budget bureau, declined to comment on its strategyreview, an official at the fund said. He also declined tocomment whether a meeting by the governing council is scheduledin November.

The investment committee has taken into account the surge inJapanese stocks and fall in the yen since Abe came to office inDecember with his aggressive reflationary fiscal and monetarypolicies. Because of higher equity values, KKR is bumping upagainst the limits of its existing allocations, which allow fora certain tolerance either side of the core weightings, andwould otherwise have to sell domestic stocks.

As of March, the federation had invested 78.8 percent indomestic bonds, 6.8 percent in domestic equities, 1.2 percent inforeign bonds, 5.3 percent in foreign stocks, 2.7 percent inshort-term assets, 2.2 in real estate and 3.0 percent in loans.

The federation's current model portfolio gives a coreweighting of 80 percent to domestic bonds, 5 percent to domesticstocks, 0 percent to foreign bonds, 5 percent to foreign stocks,4 percent to short-term assets, 2 percent to real estate and 4percent to loans.

The public fund last revised its core portfolio in April2010. The federation will craft a new medium-term strategy,expected to be hammered out in the fiscal year from April 2014for implementation the following year.

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