By Chikafumi Hodo
TOKYO, July 2 (Reuters) - Japan's public pension fund, the world's largest, posted record annual investment gains of 11.22 trillion yen ($113 billion) in the financial year that ended in March, helped by the yen's fall and the strength of domestic equities.
Prime Minister Shinzo Abe's promise to defeat years of deflation and sluggish economic growth has boosted domestic shares and pushed down the yen, lifting annual performance of the Government Pension Investment Fund (GPIF) to the best level since the fund was formed in 2001.
GPIF, which changed its asset allocation strategy last month, is closely watched by market participants - its portfolio is larger than the gross domestic product of South Korea.
GPIF, along with other public funds, is in the spotlight as the Abe administration's growth strategy seeks to mobilise public savings to support an aggressive growth agenda.
GPIF produced investment gains for the second consecutive year on its strong performance since October-December.
The public fund posted gains annual record of 11.22 trillion yen ($113 billion) in the 2012/13 financial year against 2.61 trillion yen the previous year. That translates into a positive return of 10.23 percent in 2012/13 against a return of 2.32 percent a year earlier.
GPIF produced strong positive returns in all four asset classes on an annual basis, earning 28.91 percent on foreign equities, 23.40 percent on domestic equities, 18.30 percent on foreign bonds and 3.68 percent on domestic bonds.
The fund's total assets rose 6 percent to 120.47 trillion yen ($1.21 trillion) at the end of March compared with 113.61 trillion yen a year earlier.
By the end of March, GPIF was about 59.6 percent invested in JGBs, 14.05 percent in Japanese equities, 9.44 percent in foreign bonds and 11.91 percent in foreign equities.
The public fund raised its core Japanese stock allocation to 12 percent of its portfolio from 11 percent in early June, while lowering its allocation to Japanese government bonds to 60 percent from 67 percent, the most significant shake-up of its portfolio strategy since the fund was formed in 2001.
It raised its core allocation of foreign bonds rose to 11 percent and foreign stocks to 12 percent.
EMERGING MARKETS, ASSET SALES
Aimed at diversifying its portfolio and raising returns, GPIF fund started investing in emerging markets equities for the first time in 2012/13, into which the public fund placed a total of 112 billion yen.
GPIF generated a return of 33 percent in emerging equities, which are included in its foreign equities category -outperforming the benchmark MSCI Emerging Market index of 31.86 percent.
GPIF, which manages reserves for the national pension system, has been under pressure to raise returns to cope with a rapidly ageing population.
The public fund has become a net seller of assets for four straight years since 2009/10 to raise cash to cover pension payouts.
GPIF sold or cashed out a total of 4.13 trillion yen largely from Japanese government bonds in 2012/13 against a total outflow of 2.54 trillion yen a year earlier.
A total of 4.08 trillion yen worth of cash was generated from sales of JGBs, with about a third the total derived from maturing bonds.
GPIF's sales of domestic equities totalled 19.1 billion yen, which took place in April 2012, and sales of foreign equities totalled 30.7 billion yen, which took place in June 2012.
By one projection, 20 percent of Japan's population will be pensioners over 75 years old by 2030. The share over 65 could be as high as one third of the population.
A health ministry survey in December showed total payouts of public pension funds, including national and employers schemes, jumped by 10 percent over the last four years to 52.2 trillion yen as of the end March 2012. ($1 = 99.7450 Japanese yen)
(Editing by Eric Meijer) Keywords: JAPAN PUBLICFUND/
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