Japan’s GPIF revamps equity strategy amid uncertain global markets

Having made its first negative quarterly return in two years at the end of FY2021, the world's largest pension fund plans to adapt to a changed investment landscape.
Japan’s GPIF revamps equity strategy amid uncertain global markets

Japan’s Government Pension Investment Fund (GPIF) is responding to the turmoil in the global economy by tweaking its equity investment strategy. The fund posted its first quarterly loss in two years as declines in global stock and bond markets for the three months to the end of March hurt the value of its assets.

GPIF's saw the portfolio drop 1.1% overall during the quarter, reducing its total assets to ¥196.6 trillion ($1.46 trillion), according to its latest annual report summary for the 2021/2022 fiscal year (FY2021), which ended on March 31 2022. The fund's Japanese stocks fell 1.2% in Q4, while foreign equities dropped 0.6%.

Eiji Ueda

In his review of FY2021, chief investment officer (CIO) Eiji Ueda addressed the increase in market volatility and its negative influence on the ability of actively managed equity funds to deliver alpha compared to benchmarks. 

In response, GPIF will reduce the balance of its actively managed equity, a minority of its total holdings, by ¥2 trillion and will diversify in the future by increasing the total number of active equity funds the pension fund invests in, starting in North America.

“Active funds in the North American market currently have the most choices. We are considering the direction of selection as early as possible to promote the diversification effect of active funds,” Ueda wrote in the complete annual report published in Japanese.

The fund holds the majority of its equity investments in strategies that track indexes. On April 1 2022, Ueda got his term as GPIF CIO extended another two years through March 2024.


As well as tweaking its global equity strategy, GPIF is cutting its targets for currency-hedged US fixed income allocation by approximately ¥1 trillion. The 2022 trend of the yen's depreciation against the US dollar makes hedging less favourable. The value of its domestic and foreign fixed income assets fell 1.5% and 1.2%, respectively, in the last three months of the its financial year. The dollar’s 5.8% gain against the yen helped cushion the overall blow to performance.

“The strategy changes are neither good nor bad, but they emphasise avoiding and controlling risk. That may look suitable for current market conditions, but it does have an unusual element of short-term views. It is one of the characteristics of the current CIO, and it may be unique among large public pension funds,” a Tokyo-based investment adviser familiar with GPIF's investment strategy told AsianInvestor, under condition of anonymity.

Masataka Miyazono

The investment adviser’s view that GPIF is taking short-term measures runs counter to the message of GPIF president Masataka Miyazono in the annual report that the fund looks to the long term.

Miyazono highlighted the various factors causing turmoil in global economy and influencing financial markets, including Russia’s invasion of Ukraine, the continued ripple effects of the Covid-19 pandemic and the US Federal Reserve’s interest rate hikes to combat inflation.

“These are of course temporary developments, and we have a long-term view at GPIF. We manage from that point of view and will continue to invest along the principles and lines that adhere to the norms and long-term views without being caught up in short-term market fluctuations,” Miyazono wrote in the annual report.


GPIF made a return on all its investments of 5.52% in FY2021. Overseas stocks were the best performing category, gaining 18.5%, followed by foreign bonds, which returned 2.3%. Domestic equities added 2.1%, while local bonds lost 1%.

However, strong overseas equity and fixed income returns in Q1 and Q3, and a strong Q2 for domestic equities boosted the annual investment performance.

Source: GPIF FY2021 annual report


The GPIF has a general target of keeping its basic portfolio evenly allocated into four asset classes consisting of stocks and bonds, foreign and domestic, on the back of continued rebalancing. For FY2021, a total of ¥5.5 trillion was shifted out of foreign stocks, with ¥4.3 trillion re-invested in domestic bonds and the remaining ¥1.5 trillion split between domestic equities and foreign bonds.

Source: GPIF FY2021 annual report


Alternative assets accounted for a new high 1.07% of GPIF's holdings, below the defined cap of 5%. It said it wrote off the value of its Russia-related holdings, citing uncertainty about the assets.

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