The world’s largest pension fund said it would overhaul its asset allocation strategy by slashing domestic bond exposure to 35% from 60%.
Domestic and foreign stocks will both go to 25%. Currently each one has a 12% allocation.
Overseas bonds will go to 15% from 11%.
“Given that Japan is about to significantly transform itself from an economy of persistent deflation, GPIF accelerated the review process of its policy asset mix, which should be more compatible with the changes of long-term economic prospects, and has adopted its new policy asset mix,” officials said in a statement.
GPIF also plans a 5% allocation to alternatives such as infrastructure, private equity and real estate. Currently it has no alternatives exposure.
It will also consider multi-asset investments. “For example, an external manager whose expertise widely covers both international and domestic stocks is considered,” officials said.
With $1.2 trillion in assets under management, GPIF’s reallocation has the power to disrupt markets. However, officials said that the fund plans a measured, gradual shift.
The allocation changes represent GPIF’s policy asset mix for its third medium-term plan, which starts from April 2015. The fund has been under government pressure to implement a more aggressive investment strategy in order to meet pension obligations for Japan’s aging population.
Other pension funds in Japan are expected to follow the investment strategy of the leader.