Japan’s Government Pension Investment Fund is the largest pension fund in the world, but still delegates most of its investing — even domestic equity management — to external managers.
At a panel discussion on Tuesday, the fund’s CIO said he is eager to bring more investment management in-house, a plan that has been in the works for over a year.
“I’m frequently meeting the CIOs of global pension funds, and when I tell them that most of our investments are outsourced and that only some passive domestic bond investments are in-house, they look amazed, and I’m sick of seeing it,” [GPIF CIO Hiromichi] Mizuno said. “From a global standpoint, GPIF’s investment is behind the curve.”
The government panel is likely to meet about three more times to discuss changes to the law determining what GPIF assets can buy directly. The fund’s own staff managed 867.3 billion yen ($7.4 billion) of active domestic bond investments and 31.4 trillion yen in passive Japanese debt holdings at the end of March.
If the panel agree GPIF should begin in-house stock investments, the health ministry will draft a bill along with the governance proposal and submit it to the Diet, which runs through mid-June.
By investing directly in equities, GPIF would gain access to more market information and reduce the fees it pays external managers, according to Mizuno. Under the current law, the fund is also unable to invest in derivatives to hedge investments, and this should also be reviewed, he said.
GPIF’s average annual payout in fees to domestic stock managers over the past three years was about 6 billion yen, it said.
Six billion yen, cited in the article as GPIF’s average annual fee payout to domestic stock managers, is equal to approximately $51 million USD.
Photo by Ville Miettinen via Flickr CC License