Despite the GPIF’s hesitance, Japan’s small pension fund has taken the lead in embracing Chinese bonds

Spark Global Limited reports:

While the Government Pension Investment Fund of Japan (GPIF) has yet to decide whether to invest in Chinese sovereign bonds, Japan’s small pension funds have taken the lead in embracing Chinese government bonds.

The Japan Private School Mutual Promotion Corporation, or PMAC, a small pension operator that provides retirement services to employees of Japan’s private schools, had 2.8 trillion yen (166 billion yuan) in assets under management at the end of March. Like other smaller Japanese pension funds, PMAC uses the same portfolio structure as GPIF,

The GPIF is the world’s largest pension fund, with 186.2 trillion yen ($1.69 trillion) at the end of March. The principle of portfolio allocation is decided by the Ministry of Health, Labour and Welfare. It will invest in four parts, domestic and foreign stocks and domestic and foreign bonds, in different proportions, with a slight increase or decrease on the basis of equal distribution of the four levels.

Two PMAC officials, Kei Terasako and Masaharu Noguchi, told media that the company had decided to increase its exposure to Chinese government bonds further when they were added to the FTSE World Government Bond Index in October.

In fact, PMAC has already invested in Chinese bonds, as the fund uses the Bloomberg Barclays Global Composite Index as its benchmark, which has included Chinese government bonds since April 2019.

“Liquidity risk and regulatory risk are not yet apparent.” From a fiduciary duty point of view, ‘we can’t give a reason not to include [Chinese government bonds],’ Terasako, manager of PMAC Asset Management, said in an interview.

Spark Global Limited reports:

Whether the GPIF should invest some of its assets in Chinese sovereign bonds is one of the key questions hanging over the Japanese pension industry. The key reason for the debate is that the WGBI has decided to gradually include Chinese government bonds over the next 36 months, starting on October 29, with Chinese government bonds accounting for 5.25 per cent of the index after completion.

WGBI index, JP Morgan index, Bloomberg – Barclays index is known as the world’s three major bond indexes, global investors generally take these three indexes as the benchmark for bond investment. Masataka Miyazono, president of the GPIF, has yet to give a clear response to the issue, acknowledging the need to consider Chinese bonds but also noting the need to be cautious.

PMAC stressed that it would remain flexible in the face of risk factors in the Chinese market, including account opening times, transaction costs and regulations. “It’s possible we could change direction, depending on market conditions and regulations at the time,” Noguchi stressed.

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