Browse > Home / Finance, Fiscal Policy, Politics / LDP panel proposes soverign wealth fund setup for Japan

LDP panel proposes soverign wealth fund setup for Japan

July 3, 2008
By Ken Worsley


Things have been slightly quiet on the sovereign-wealth-fund-for-Japan front lately - a bill proposing an SWF for Japan was supposed to have been written in April - but today the issue finally made its way back into the news.

According to the Nikkei, an LDP panel has proposed taking 10 trillion yen out of the nation’s Government Pension Investment Fund (GPIF), which currently oversees about 150 trillion yen in assets. About two-thirds of this money is held in Japanese government bonds, while the rest is in overseas government bonds and both domestic and foreign equities.

The interesting part of the proposal is what follows. As the Nikkei puts it:

the LDP panel urged the government to set up a state-owned asset management firm that would manage about 10 trillion yen on behalf of the GPIF. The proportions of the different types of assets would remain unchanged, but the fund would be staffed by financial professionals, who would be authorized to invest more aggressively than the GPIF.

The proportions would remain unchanged? Why force an SWF to put about two-thirds of its funds into Japanese government bonds? Oh yeah, we know the answer to that one already. We do need to keep in mind that Japan’s pension fund lost money on its investments last year.

It seems as though the Ministry of Finance has successfully kept the government’s hands away from the nation’s foreign reserves. They’re going to deplete the pension reserves first…

On a side note, the Ministry of Finance has been bossing the government around to quite an extent recently, especially over budget items, including education-related expenditures (more details to follow soon) and cutting in wasteful spending at the Foreign Ministry (which should be done). Can Fukuda stand up to the MOF? Is this revenge for not getting through an MOF Old Boy as Governor of the Bank of Japan? It’s starting to look like Mr Abe being laid to waste by the Ministry of Health, Labor and Welfare all over again…

Filed Under Finance, Fiscal Policy, Politics 

Social Bookmarks:
del.icio.us:LDP panel proposes soverign wealth fund setup for Japan digg:LDP panel proposes soverign wealth fund setup for Japan newsvine:LDP panel proposes soverign wealth fund setup for Japan furl:LDP panel proposes soverign wealth fund setup for Japan reddit:LDP panel proposes soverign wealth fund setup for Japan
Related Posts:
Sovereign Fund Not Happening: ‘Official’ at the G7 Conference
No Surprise: Ministry of Finance working against moves to set up sovereign wealth fund
Nikkei on the Soverign Wealth Fund idea
Japan’s pension fund lost 5.65 trilion yen in fiscal 2007
Sunday reading: Stephen Jen on Japan’s need for a sovereign wealth fund

Comments

8 Responses to “LDP panel proposes soverign wealth fund setup for Japan”

  1. Brad on July 5th, 2008 2:37 pm

    What’s the point? It’s basically the same thing, just smaller. Why not just use the pension fund effectively? This looks like some kind of experiment.

  2. Q on July 6th, 2008 12:42 am

    This is a sick joke, not an experiment. It will lose money, blow up and then any pressure to have a fund will die away.

  3. Pavlov on July 6th, 2008 11:43 am

    Fact is, very few of the people involved with making decisions on the SWF issue are qualified to do so. I think it’s unrealistic to expect them to do anything that would be in the nation’s best interests. I don’t think they even know what that might be.

  4. Mark on July 6th, 2008 7:01 pm

    the fund would be staffed by financial professionals, who would be authorized to invest more aggressively than the GPIF.

    This has to be the biggest lie of it all. Who would take such a position aside from a recent grad from one of Japan’s top unis? Do they really think they’re going to pull brains away from big investment banks when they have relatively small funds with such a high proportion put into J-bonds? There’s more money to be made at private firms. No one with any real skills with apply for this.

  5. Ken Worsley on July 7th, 2008 12:38 am

    Pavlov, I agree with you to some degree. Certainly, top LDP officials often know nothing about finance - though they’re hopefully getting advice. I would not be surprised to see this turn into an Amakudari. What I really worry about is this fund turning into a cross-shareholding partner for Japanese firms who can promise Amakudari positions in the future.

    At the same time, with decent staff, this really should make money.

    Mark, I might agree, though we really haven’t seen anything concrete about the recruiting. Wait and see…

  6. Contrarian on July 7th, 2008 9:58 am

    I already expressed my opinion on SWFs in one of the older SWF posts on this site. It basically boiled down to: bureaucracy yadda yadda public funds yadda yadda cronyism/corruption yadda yadda…

    Since then, what we have also found are two more things:

    1. Poor performance
    2. Politics

    There are a handful of reasons for 1, but 2 is much more interesting. We’ve heard plenty of noise about “outside influence” on the CIC’s decisions. I’m sure it happens in other SWFs outside of China and I wouldn’t be surprised if the political mess in Japan could make a SWF fall flat on its face.

  7. Mark on July 8th, 2008 6:58 pm

    But do you really expect to see something concrete announced publicly?

  8. Ken Worsley on July 9th, 2008 6:18 pm

    Contrarian, no doubt, 2 is a lot more interesting. Mark, to put it short, no.

Got something to say?