The world’s biggest pension fund posted the worst annual performance since the global financial crisis, with losses exacerbated by unfavorable currency moves and a foray into equity markets.
Japan’s $1.3 trillion Government Pension Investment Fund lost 3.8 percent in the year ended March 31, or 5.3 trillion yen ($51 billion), the retirement manager said Friday in Tokyo. That’s the biggest drop since the fiscal year ended March 31, 2009. GPIF lost 10.8 percent on domestic equities and 9.6 percent on shares in other markets, while Japanese bonds handed the fund a 4.1 percent gain.
The annual loss — GPIF’s first since doubling its allocation to stocks and paring domestic bond holdings in October 2014 — came during a volatile stint for markets. Japanese shares sank 13 percent in the year through March while the yen climbed 6.7 percent against the dollar, reducing returns from overseas investments. The only asset class to post a profit was local debt, which jumped in value as the Bank of Japan’s adoption of negative interest rates sent yields tumbling.
“The results are painful,” said Masahiro Ichikawa, a senior strategist at Sumitomo Mitsui Asset Management Co. in Tokyo. “Because it’s a pension fund, they need to have a long-term outlook, so I don’t think we can say yet that they took on too much risk. It was a harsh investment environment for most of us.”
In a press briefing in Tokyo after the results were announced, GPIF President Norihiro Takahashi said he will reflect on the performance, but that the current portfolio has enough flexibility to adapt to different market conditions and he wants to run the fund steadily. Yoshihide Suga, Japan’s chief government spokesman, said GPIF’s management shouldn’t be influenced by short-term moves and there is absolutely no issue with its financing.
The fund also disclosed individual stock holdings and the issuers of the bonds it held as of March 2015, the first time it’s divulged such detail. GPIF’s biggest investments in stocks were Toyota Motor Corp. and Mitsubishi UFJ Financial Group Inc. in Tokyo and Apple Inc. outside Japan. The fund’s largest debt holdings included Japanese government bonds and U.S. Treasuries. GPIF plans to announce its holdings as of March this year on Nov. 25, and is staggering the releases to avoid impacting markets, fund official Hiro Mitsuishi said on Monday.
GPIF held 22 percent of investments in local stocks at the end of March, and 38 percent in domestic bonds. Its overseas equity holdings made up 22 percent, while foreign debt accounted for 13 percent of its assets. Alternative investments were 0.06 percent of holdings, up from 0.04 percent at the end of 2015. GPIF targets allocations of 25 percent each for Japanese and overseas stocks, 35 percent for local bonds and 15 percent for offshore debt.
“They have more than enough room to increase their weighting to Japanese stocks,” said Makoto Sengoku, a market analyst at Tokai Tokyo Research Center.
Almost 80 percent of GPIF’s holdings were passive investments, according to the statement. While GPIF’s losses can be mostly attributed to rocky markets and an index-hugging investment approach, its peer in Canada has done better. The $212 billion Canada Pension Plan Investment Board had a 3.4 percent return for the year ended March, with its biggest gain coming from private emerging-market equity investments and real estate.
Investors “have been fully aware that there would be losses,” Akio Yoshino, chief economist at Amundi Japan Ltd. in Tokyo, said before the fund posted earnings. “What’s more interesting is how this will be used politically, or even misused.”
GPIF’s performance was announced three weeks later than usual, sparking speculation Prime Minister Shinzo Abe was holding off on releasing bad news until after upper-house elections held earlier this month. Opposition lawmakers have been critical of Abe’s decision to increase riskier assets, with the Democratic Party of Japan pledging to return GPIF’s investments to safer assets in its election manifesto.
“We’ve repeatedly pointed out that it’s problematic to invest in stocks, which are high-risk, but the situation is turning into what we feared,” DPJ President Katsuya Okada said in a press conference on July 1. “It’s a grave problem that could lead to reductions in future pensions.”
Investors, however, say GPIF should stay the course.
“They took on more risk, and they posted good returns before, but there’s going to be times when they see losses,” said Koichi Kurose, Tokyo-based chief market strategist at Resona Bank Ltd. “It can’t be helped.”
London Real Estate Company for African Investors Announces its Launch
Wetherby Real Estate, which has been created to source and acquire luxury Serviced Accommodation in Prime Central London on behalf of global investors, has announced its launch. It will be specialising in investment opportunities for High Net Worth individuals from the African continent, although its service is open to investors from all over the world.
The business has been launched by Barbara Chanakira, founder and CEO of the Mayfair based Eaton Property Consultants, another acquisition service but one which purchases a range of residential assets for HNWIs. She has almost 15 years’ experience in the luxury residential sector, overseeing huge property portfolios for HNWIs from across the globe which include those of Gulf State Royal Families and high-profile celebrities.
Wetherby will be operating exclusively in one of Europe’s fastest growing residential classes, Serviced Accommodation. It will only acquire real estate in Prime Central London and tap into huge demand from a global investment audience, which has grown significantly over the last few years as the U.K’s Serviced Accommodation market continues to flourish. Wetherby considers PCL to be one of the globe’s safest and most lucrative investment destinations.
The company is registered in Gibraltar but will be operating out of its London headquarters. Investments are made through the company’s affiliated wealth managers and an FCA regulated Custodian, and Wetherby completes the real estate acquisitions through its UK-incorporated Special Purpose Vehicle. It has already identified a number of attractive prospects in London’s prime postcodes and it plans to expand into other real estate sectors in the future.
Chanakira will be joined by Simon Hall and Augustina Ogbebor, who bring a combined total of over 35 years of experience in investment and advisory services and will be occupying the roles of Non-Executive Director and Head of Investor Relations, respectively.
Hall has over 20 years’ experience advising HNWIs and global corporations on growth and investments, working closely with international developments banks and clients within emerging markets.
Ogbebor’s 16 years in investment banking has seen her work with the likes of JP Morgan, Deutsche Bank, Macquarie and Lotus Capital Ltd; one of Nigeria’s most prestigious fund managers and where she was head of business development.
Barbara Chanakira, CEO of Wetherby Real Estate Ltd, said:
“London’s Serviced Accommodation market has an extremely bright future ahead, which has been compounded by changes taking place in the economy and society more broadly. The ongoing influence of Covid 19 has meant that lower operating costs, better social distancing and self catering benefits have enhanced its appeal, whilst the evolution of an increasingly transient workforce puts the sector in poll position to build upon its rapid growth of the last few years.
London has an immovable social, cultural and economic appeal, and our intricate knowledge of its luxury real estate market as well as our carefully designed investment structure makes for an extremely attractive proposition. We have already identified a number of attractive opportunities and look forward to offering them to our network of investors from Africa and beyond.”
2021’s Major Investment Risks – but Why it Could be a Year of Massive Opportunity
Investment headwinds will “still exceed the tailwinds” in 2021 – but there could be more “major opportunities now than in perhaps the last 10 years” if you know where to look.
This is the bold and, given 2020, perhaps surprisingly optimistic forecast from Nigel Green, chief executive and founder of deVere Group, one of the world’s largest independent financial advisory and fintech organisations.
It comes as investors around the world focus on rebalancing portfolios for 2021, after a year no-one expected.
Mr Green says: “2020 was a year for which nobody had planned.
“This included investors, many of whom were caught spectacularly off-guard by not having properly diversified portfolios, which left them open to untold financial risks.
“Looking ahead to 2021, it is likely that investment headwinds will still exceed the tailwinds – but, I believe, that there are also more major investment opportunities to be had in the next year than perhaps in the last decade.”
‘Headwinds’ are the factors that likely weigh on growth and returns, and ‘tailwinds’ are those that can be expected to boost growth and help drive positive returns.
He continues: “The major long-term headwind from the fallout of 2020 is unemployment, which will hit demand, growth and investment.
“There’s also the roll-out of a mass global vaccination agenda which will be a lengthy process and logistical minefield, plus there are the ‘vaccine sceptic’ concerns to address.
“Meanwhile there are geopolitical issues that could impact on investor returns. These include the significant readjustment that will need to happen following Brexit, U.S.-China trade relations which are likely to become increasingly competitive especially in the tech sector, and the rising border tensions between India and China, amongst others.”
However, despite the significant headwinds, the deVere CEO flags three major investment tailwinds in 2021.
“First, the rollout of the Covid vaccines which means economies can be expected to begin solid recoveries,” he says.
“Second, President-elect Joe Biden will enter office and his administration promises a more predictable approach to trade and foreign affairs – and the markets like certainty.
“And third, it is likely that governments will continue to offer fiscal support packages as their economies recover from the pandemic, offering a ‘floor’ for markets.”
Mr Green goes on to add: “To quote Einstein, ‘In the midst of every crisis, lies great opportunity.’
“This is why, after such a monumental crisis, I believe that if you know where to look and act appropriately to build your wealth, there could be plenty of key opportunities to come.
“The pandemic has accelerated history, speeding up and exacerbating major trends in just a few months, that ordinarily might have taken decades to be fully realised.”
He maintains that the global economy, how we live, do business and interact remains fundamentally changed. “It is doubtful the world will go back exactly to how it was pre-Covid – there are many aspects of the ‘new normal’ which people like and support, just a home working. As such, some of the major shifts are unlikely to be reversed,” he notes.
“As such, investors need to look for the lower entry points of quality companies to top-up their portfolios and, critically, they need to bear in mind how the world has changed.
“Their portfolios must reflect the future, not the past.”
Mr Green concludes: “Headwinds will surpass tailwinds in 2021 as the world readjusts, but it’s essential that investors stay invested. As we know, history has shown us that stock markets tend to go up over the long-term.
“But as the world moves ahead to a post-pandemic era, it’s crucial that investors ensure their portfolios are suitably diversified across asset classes, sectors, currencies and regions, so as to make the most of the considerable opportunities that will inevitably present themselves.”
Global Deal Activity Down by 4.5% in October 2020
A total of 6,304 deals were announced globally during October 2020, which is a decrease of 4.5% over the 6,598 deals announced during September, according to GlobalData, a leading data, and analytics company. An analysis of GlobalData’s Financial Deals Database revealed that the deal volume during October remained below the monthly average of Q3 2020.
Aurojyoti Bose, the Lead Analyst at GlobalData, comments: “After demonstrating growth for four consecutive months, the deal volume shrank in October. The decline in deal activity could be attributed to inconsistencies across different regions. The APAC region remained a weak spot, while deal activity remained mostly flat in North America, and the Middle East and Africa (MEA) region witnessed growth in deal activity.”
North America attracted the highest number of investments, followed by APAC, Europe, the MEA, and South, and Central America.
The uncertain global economic landscape lowered the deal volume in October for major markets such as the US, Germany, Australia, France, India, and China compared to the previous month. On the contrary, the UK, Japan, South Korea, and Canada saw growth of 15.6%,14.9%, 3.8%, and 2.2%, respectively, in October as compared to September’s deal volume.
Bose continued: “Most of the deal types witnessed a decline in volume during October compared to the previous month. Private equity, equity offerings, venture financing, debt offerings, and partnership deals volume decreased by a respective 2.4%, 9.1%, 9.8%, 14.6%, and 24.6% – while the deal volume for mergers and acquisitions (M&A) increased by 7.2%.”
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