Japan's public pension fund posts record quarterly losses amid equities devaluation

Japan's public pension fund on Monday posted its worst quarterly loss since the global financial crash, losing 7.9 trillion yen (64.32 billion U.S. dollars) in the third quarter owing to slumping values of its domestically and foreign held stocks, as well as a slowdown in some emerging economies.

The record loss in the recording period for the world's largest 1.2 trillion U.S. dollars Government Pension Investment Fund (GPIF), equates to a 5.9 percent decline in the value of its holdings, the GPIF said in a report Monday, with the losses following the fund doubling its target allocations for equities in October last year, in a move by Prime Minister Shinzo Abe to promote more confidence in financial markets here.

According to an official statement delivered by the fund Monday, in the July-September quarter, it made losses on paper totaling 4.3 trillion yen in domestic shares, 3.6 trillion yen in foreign shares, and some 240 billion yen in foreign bonds.

The losses mark the biggest drop for the fund since comparable data became available in 2008 and as analysts have attested, show the potential fragility in the prime minister's moves to push for more aggressive investments in the short-term, without a clear, tangible and quantifiable long-term vision.

The fund's total losses eclipsed those it suffered in the last quarter of 2008 as the global financial crisis reached its zenith, with the fund losing 5.7 trillion yen at that time, and in terms of earnings, marks the third largest decline the GPIF has posted at 5.6 percent -- compared to 6.1 percent in the fourth quarter of 2008 and 7.8 percent in the third quarter of 2001, the GPIF's statement said.

The fund cited an erratic stock market responding to negative cues from emerging economies and significant losses logged owing to losses made in overseas equities due to the yen's rise.

According to the latest statistics in September, the fund holds 39 percent of its assets in Japanese debt and 21 percent in Japanese equities, dropping 23.4 percent from the previous quarter and still sitting below its eyed goal of 25 percent. The fund had 22 percent of its investments in foreign stocks at the end of September, and 14 percent in overseas bonds, it said.

"Short term market moves lead to gains and losses, but over the 14 years since we started investing, the overall trend is upwards. Don't evaluate the results over the short term, as looking over the long term is important," Hiroyuki Mitsuishi, a councilor at GPIF was quoted as saying at a press conference Monday, in a bid to garner confidence in the potential risk of the fund being unable to meet pension payouts.

Mitsuishi declined to comment, however, as to whether or not the fund would actually hedge its foreign-exchange risk if necessary, having previously intimated this might be an option. Endit