Japan's top pension fund keeps strategy amid volatility
"Short-term moves in the market will not affect our management at all,' GPIF President Kazuto Uchida said in his first media interview since taking charge of the $1.7 trillion fund in April. "We need to monitor the global economy and the impact of tariffs but when you look at market conditions, there is no need to change our model portfolio.'
As it seeks to ride out the latest surge in volatility, Japan's largest pension fund aims to enhance portfolio rebalancing with futures and analyze correlations between different assets. The GPIF, which splits assets evenly between stocks and bonds, incurred quarterly losses earlier this year on all four of its asset classes for the first time since 2022.
Uchida said the latest trade deal between the U.S. and Japan should have a "positive impact' on the stock market. The Topix is headed for a record high after U.S. President Donald Trump announced he was reducing a threatened 25% tariff on Japan to 15%.
The GPIF head also said the fund can cope with the recent spike in volatility of domestic debt. Yields have jumped amid concern that Prime Minister Shigeru Ishiba may hand off to a successor who increases government spending or reduces taxes.
The fund has set up a team to study alternative investments, which it has increased rapidly since 2021. "If there are good opportunities, we will increase our holdings further but we need to be convinced that there will be excess returns. That is becoming difficult,' Uchida said.
In addition to navigating short-term market fluctuations, GPIF is also taking a long-term view by expanding its focus on sustainability.
An evolution of investment related to environmental, social and governance (ESG) strategies to address a wider set of objectives can help support returns and economic growth, according to Japan's pension fund, which ranks among the world's top green investors.
ESG strategies are "evolving into sustainability, which addresses a wider range of themes,' Uchida said in an interview. "Whether it's the environment, society or corporate governance, improving these areas ultimately leads to the growth of the global economy, and the growth of capital markets.'
GPIF held about ¥18.2 trillion ($123.6 billion) of assets tracking ESG indexes at the end of March — or 14.7% of the fund's equity investments — up from ¥17.8 trillion a year earlier, bucking a wider global trend of investors paring back their green exposure. ESG-labeled funds have experienced record outflows as funds shun a strategy that's struggled with below-average returns and political backlash, particularly in the U.S.
Norway's $1.9 trillion Norges Bank Investment Management and GPIF are regarded as rare examples of major investors that are continuing to support sustainability-related strategies.
"Incorporating sustainability into the investment chain and having all stakeholders consider it, this leads to long-term revenue growth for investors, as well as benefits for society as a whole, the economy as a whole — such as job creation, expansion and wage increases,' said Uchida.
The fund issued new guidelines earlier this year backing sustainability-related investments and emphasized that managing risks is paramount to achieving long-term growth across portfolios. The Financial Services Agency said in December that it was discussing the timing and application of a framework for sustainability-disclosure standards.
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