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OECD Working Papers on Finance, Insurance and Private Pensions No. 6 - page 8 / 33





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  • The GPIF should consider whether the long-term performance goal of the fund may be better attained – while improving the fund‘s diversification – by allocating a small amount of funds towards long-term, less liquid instruments, including foreign ones.

  • The current ceiling set by the investment committee on investment in foreign securities (the portfolio invested in foreign bonds must be less than the portfolio invested in foreign equities which in turn must be less than the portfolio invested in domestic equities) should be justified on financial grounds taking into the account the fund‘s performance target.

    • The investment policy should consider the fund‘s potential impact on the domestic economy and financial stability and it should integrate environmental, social and corporate governance (ESG) factors. The GPIF could become a signatory of the UN Principles of Responsible Investing.

  • I.


The challenges of an aging population and rising government debt levels are not unique to Tokyo though these issues are particularly pressing for Japan vs. its OECD peers.3 Population ageing is most advanced in Japan and UN projections show that this is still likely to be the case in 50 years. Japan has also overtaken all other OECD countries in the level of gross debt to GDP. Pension obligations consequently represent a major percentage of the Japanese government‘s long-term commitments.

The OECD supports the establishment of reserves to prefund social security benefits in order to help governments respond more effectively to the fiscal pressures from ageing populations (via tax smoothing and raising public savings thereby improving the overall debt position of the government). In addition, international diversification of the reserve fund‘s assets can provide (long-term) exposure to other countries experiencing less of a demographic decline and faster growth rates.


Indeed the OECD has a more pessimistic debt outlook than the Japanese government estimating 208% gross financial liabilities/ GDP in 2017 vs. the Reference Projection of 168%.


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