Japan GPIF moves toward private-equity investment -sources

Reuters

By Chikafumi Hodo

TOKYO, Oct 18 (Reuters) - Japan's Government PensionInvestment Fund (GPIF) is making initial moves toward investingin private equity, sources say, a potentially big step in theworld's biggest public pension fund's strategy of shifting someof its $1.2 trillion in assets towards riskier investments.

GPIF has hired a veteran private-equity manager from SonyLife Insurance Co and moved several internal staff into itsinvestment group to focus on private equity, people familiarwith the process told Reuters on Friday.

Putting even a sliver of Japan's $2 trillion public fundsinto private equity - typically nimble private companies thatinvest in promising startups and turnarounds - would be anotable advance in Prime Minister Shinzo Abe's push for higherreturns from public funds and greater risk-taking in the economyat large.

GPIF posted record annual investment gains of 11.2 trillionyen ($114.56 billion) in the fiscal year through March but inrecent years it has underperformed major foreign public pensionfunds that are more heavily weighted towards stocks and otherrisk assets.

In June, GPIF, which faces rising payout obligations for therapidly ageing population, made its biggest asset allocationshift since its birth in 2001, boosting its target share forstocks while lowering the government bond weighting.

The fund last year expanded its investment beyond its coreconventional asset classes by investing in emerging marketsequities.

Abe, who took office in December, has had early success withhis aggressive economic policies of massive monetary easing, biggovernment spending and promises of longer-term strategies topromote growth.

"Abenomics" has buoyed sentiment with a weaker yen andstronger stocks and seen a gradual increase to capital spending,but it has yet to see a wholesale shift of funds out of bankdeposits and government bonds into riskier investments.

The Japanese private equity industry has been strugglingsince the Lehman crisis. The private equity market is dominatedby deals in the United States. The market's total portfolio isabout $3 trillion and the United States accounts for about 60percent of that.

'ALTER EMPHASIS, DIVERSIFY'

Investment manager Noriko Hayashi joined GPIF on Oct. 1 fromSony Life and will be focusing on potential investments inprivate equity with the other investment managers tasked withsuch investments, the sources said.

A GPIF spokesman declined to confirm Hayashi's hire, citingprivacy concerns, or to discuss the potential for private equityinvestment by the fund. Hayashi could not be reached forcomment.

It is not clear when GPIF might begin investing in privateequity. Such investment may be included in a medium-termstrategy plan expected to be hammered out in the fiscal yearfrom April 2014 for implementation the following year, a sourcesaid.

Investment strategy may depend on a November report by anAbe-appointed panel examining public funds' investments. Theseven-member panel is looking into improving governance ofpublic funds and beefing up returns on investments by raisingexposure to equities and foreign assets.

The panel said in September that public funds, includingGPIF, should alter their emphasis on Japanese government bondsand diversify to investments including infrastructure andprivate equity.

GPIF started looking into alternative assets in November oflast year, when it selected four companies to conductfeasibility studies for possible future investments in assetsincluding private equity and infrastructure.

GPIF has selected Japanese law firm Atsumi & Sakai, Swissprivate equity fund firm Capital Dynamics, Japanese lifeinsurer-backed asset firm T&D Asset Management and Tokyo-basedindependent private equity consultant firm Brightrust PE Japanfor the feasibility studies.

The results of the feasibility studies, which were completedin March, were presented to members of GPIF's 10-personinvestment committee in July.

In the April-June quarter, GPIF posted an investment gain of1.9 percent, but returns were hurt by a record quarterly lossfrom its investment in Japanese bonds, the largest share of itsportfolio.

As of the end of June, GPIF was 57.7 percent invested in yenbonds, 15.2 percent in Japanese equities, 9.7 percent in foreignbonds and 12.4 percent in foreign equities, with 5 percent incash and other short-term assets.

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