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Exclusive – Abe to urge review of Japan’s public fund strategy – sources

Nation’s Public Pension Funds

TOKYO (Reuters) – Japan’s government is set to urge the nation’s public pension funds – a pool of over $2 trillion – to increase their investment in equities and overseas assets as part of a growth strategy being readied by Prime Minister Shinzo Abe, according to people with knowledge of the policy shift.

The steps, which could be announced as soon as Wednesday, represent the first time the Abe administration has looked to mobilize Japan’s massive pool of savings to support a growth agenda that aims to spur more consumer spending and corporate investment by pushing the economy toward 2 percent inflation.

It also suggests a new element of risk to the policies known as Abenomics since it would shift funding from the government to the private sector at the risk of driving interest rates higher.

Specifically, the government will set up a panel in July to consider the investment strategies of public funds, which, like other Japanese institutional investors, have relied heavily on investment in Japanese government bonds in recent years.

The panel review will be included as part of a package of steps intended to boost growth set to be announced on Wednesday, according to the people with knowledge of the preparations who asked not to be named because an announcement has not been made.

The panel will look to reach a conclusion as soon as this autumn on strategy and will urge implementation of the new investment guidelines by public funds no later than April 2015, according to the sources.

As part of its deliberations, the panel will consider steps to allow the public funds to invest in alternative investments, including infrastructure financing both in Japan and abroad, the sources said.

The more aggressive investment strategy would apply to the Government Pension Investment Fund, known as GPIF, and about 100 other semi-governmental funds and public funds such as Federation of National Public Service Personnel Mutual Aid Associations, known as KKR.

In recent years, Japanese public funds led by GPIF have followed a conservative strategy that has meant a large allocation of funds to the Japanese government bond market and made them a near-captive source of financing for government spending.

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