Why the World’s Biggest Pension Fund Should Buy More Junk Bonds
A former senior economist at the Federal Reserve suggests that the world’s largest pension fund should step out of its comfort zone.
Yoshio Nozawa, who researched corporate bond spreads for the Fed over the past five years, said Japan’s Government Pension Investment Fund and its peers should buy more high-yield bonds and alternative assets such as real estate. The pension fund’s long-term performance of its 158.6 trillion yen ($1.43 trillion) in assets is more important than quarterly results, he said.
“Investors that can own assets for a long period have a high risk tolerance,” Nozawa, 39, said in an interview in Tokyo after receiving a GPIF award for corporate bond research in July. “Pension funds have the advantage of being able to hold low-liquidity products that other investors usually shy away from, so there’s room for them to consider investing in more of those assets.”
The GPIF revised investment guidelines earlier this year to include the buying of Japanese debt rated below BBB, or junk bonds, under certain conditions. As of March-end, it allocated about 415 billion yen to actively managed foreign high-yield bond funds run by firms such as Nomura Asset Management, MacKay Shields and UBS Asset Management.
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