April 10, 2014 / 11:14 AM / 3 years ago

UPDATE 1-Japan GPIF in talks to invest in private equity -official

* GPIF may add alternative asset category in its portfolio

* GPIF could potentially enter alternative by itself

* To invest in infrastructure with Canada's OMERS, Japan's DBJ (Adds comments, details)

By Chikafumi Hodo

TOKYO, April 10 (Reuters) - Japan's $1.26 trillion public pension fund, the world's largest, is looking at alternative assets, a senior official said on Thursday, as it seeks to diversify its holdings and generate higher returns to finance a rapidly ageing population.

The Government Pension Investment Fund, known as GPIF, is in talks with several global private equity investors to increase its exposure to alternative assets after reaching an agreement in February to invest in infrastructure.

"Currently, beside infrastructure and specifically on joint private equity investments, we are holding discussions with several global investors," Tokihiko Shimizu, director-general of GPIF's research department, told the Global Alternative Investment Forum in Tokyo.

The public fund could expand its asset from the current five conventional categories of domestic bonds, domestic equities, foreign bonds, foreign equities and short-term assets, Shimizu said.

"We cannot forget our obligation to provide an explanation to the general public about the scale and the purpose of our investments. If we think about this, our basic idea is to treat alternatives as an independent asset class," Shimizu said.

Shimizu did not give details about the proposed size of the alternative asset investments, saying this would be decided by the fund's 10-person Investment Committee which is reviewing its new long-term investment strategy.

In February, GPIF said it had reached an agreement with Canada's Ontario Municipal Employees Retirement System and Development Bank of Japan to invest in infrastructure projects through an investment trust fund. The investment was categorised in the foreign bond asset class.

The public fund has made a series of changes in investment strategies after pressure from Prime Minister Shinzo Abe's government to diversify its assets and reduce its reliance on low-yielding domestic bonds.

A panel appointed by Abe said in November that GPIF and other public funds should seek higher returns by diversifying into asset classes such as infrastructure and real estate.

On Wednesday, GPIF issued a tender to hire asset managers to supervise its $101 billion portfolio of foreign bonds, expanding its investment in the category beyond conventional bonds for the first time.

GPIF also said it would seek managers for emerging markets bonds, foreign high-yield bonds, and foreign inflation-linked bonds. (Reporting by Chikafumi Hodo; Writing by Dominic Lau; Editing by Edmund Klamann and Miral Fahmy)

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