Hiro Mizuno is the CIO of the Japanese $1.46 trillion Government Pension Investment Fund.

Fund manager Hiro Mizuno has raised new concerns about the markets. He says that global markets are so synchronized, diversification is nearly impossible

Speaking at a CalPERS board meeting, Hiro Mizuno said his fund incurred mark-to-market losses of $150 billion during the fourth quarter of 2018.

Global markets are too much in synch

Mizuno disclosed that astonishingly, GPIF lost money in every single asset class in that quarter.

“We lost in every single asset class, and we also lost in a currency translation as well,” he said. “It never happened in the past.”

He said this happened because the global markets are too much in synch.

Hiro Mizuno: “Nowhere to hide”

This excessive unidirectional linkage means diversification or hedging are difficult, and there is no protection from a sudden decline.

“Conventional wisdom of the portfolio diversification is that when we lose money in equity, we make a profit in fixed income,” he said. But this is no longer the case.

Private markets the solution

Alternative investments in private markets are uncorrelated with the public markets. GPIF is, therefore, pushing up these investments, which can be as much as 5% of its portfolio.

As at the end of June 2019, alternative investments amounted to 0.35% of GPIF’s portfolio.

But this is becoming a crowded trade, warned Mizuno.