In the third quarter, global pension funds all suffered losses.

According to the data, the global large-scale pension funds have seen a decline in their returns this year. Among them, the Government Pension Investment Fund (GPIF) of Japan, the world's largest pension fund, suffered a loss of $4.5 billion in the third quarter. Among all its investments, domestic Japanese bonds performed the worst, while the strengthening of the US dollar helped consolidate its performance in overseas assets.

GPIF stated on Thursday that it incurred a loss of 0.3% in the third quarter, with its total assets under management slightly increasing to 219.32 trillion yen for the quarter due to the transfer of government pension funds. Among all its investments, domestic Japanese bonds suffered a loss of 2.7%, marking the largest quarterly loss since the establishment of the pension fund, while its holdings of Japanese stocks rose by 2.5%.

At the same time, the strengthening of the US dollar against the Japanese yen helped GPIF consolidate its overseas assets. In the third quarter, GPIF's overseas investments only incurred a loss of 0.1%, but its non-yen bond investments suffered a loss of 0.8% due to the more than 3% appreciation of the US dollar against the Japanese yen.

As Japanese domestic bonds account for about one-fourth of GPIF's total investments, the loss in the third quarter indicates that the risk of holding Japanese domestic bonds is increasing as the Bank of Japan gradually changes its ultra-loose monetary policy. Data shows that the yield on 10-year Japanese government bonds reached a near 10-year high this week, following the Bank of Japan's adjustment of its yield curve control program, allowing long-term bond yields to continue rising.

Masataka Miyazono, President of GPIF, stated in a statement, "We will invest from a long-term perspective and fulfill our fiduciary duty by reserving funds to support the pension system."

It's not just Japan, the returns of global pension funds in the third quarter of 2023 have all declined.

On October 24th, the Central Bank of Norway announced that the Government Pension Fund Global (GPFG) of Norway recorded an investment return of -2.1% in the third quarter of 2023, resulting in a loss of $34 billion, but still outperforming the benchmark. In terms of asset classes, the equity investment return of GPFG was -2.1%, and the fixed income investment return was -2.2%. This means that GPFG's main investments all recorded negative returns. Currently, GPFG is considering whether to include private equity investments in its investment scope.

On October 31st, RBC Investor Services revealed that the median investment return of Canadian defined benefit (DB) pension plans in the third quarter of 2023 was -4%, significantly lower than the previous two quarters of 2023. The main reason for the decline in Canadian pension fund returns is that investors expect interest rates to remain high in the long term, leading to an increase in government bond yields and a significant decline in fixed income assets.

In addition, on October 23rd, Wilshire Associates reported that the aggregate funding ratio of US state pension funds in the third quarter of 2023 had dropped to 75.2%, the lowest level since 2022. The decline in pension fund assets in the third quarter was the main reason for the decrease in the funding ratio. According to the data, in the third quarter of this year, the MSCI Global Stock Market Index fell by 3.8%, the S&P 500 Index fell by 3.7%, and the TOPIX Index rose by 1.5%. The yield on 10-year US Treasury bonds rose by 73 basis points, while the yield on 10-year Japanese government bonds rose by 37 basis points. In midday trading on Thursday, the yield on 10-year US Treasury bonds fell by 0.149% to 4.642%, and the yield on 10-year Japanese government bonds fell by 0.035% to 0.921%.