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

By Chikafumi Hodo and Takaya Yamaguchi

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

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

The investment committee of the Federation of National Public Service Personnel Mutual Aid Association, recommended in mid-October that the fund lower the JGB weighting in its core portfolio from the current 80 percent and raise the equity share from 5 percent, the sources said.

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

The pension fund of the federation, known by its Japanese initials KKR, covers 1.2 million active and retired public servants.

The change would be in line with a shift towards more aggressive investing by Japan's Government Pension Investment Fund (GPIF), the world's biggest pension fund with $1.2 trillion in assets.

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

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

It is unclear the exact changes in weightings that KKR will make.

After making the biggest ever change to its model portfolio in June, GPIF gives a weighting of 12 percent to domestic stocks, 60 percent to domestic bonds, 12 percent to foreign stocks, 11 percent to foreign bonds and 5 percent to short-term assets.

The federation, which is supervised by the Ministry of Finance's budget bureau, declined to comment on its strategy review, an official at the fund said. He also declined to comment whether a meeting by the governing council is scheduled in November.

The investment committee has taken into account the surge in Japanese stocks and fall in the yen since Abe came to office in December with his aggressive reflationary fiscal and monetary policies. Because of higher equity values, KKR is bumping up against the limits of its existing allocations, which allow for a certain tolerance either side of the core weightings, and would otherwise have to sell domestic stocks.

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

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

The public fund last revised its core portfolio in April 2010. The federation will craft a new medium-term strategy, expected to be hammered out in the fiscal year from April 2014 for implementation the following year.