Japan’s GPIF deals in domestic equity managers

11 April 2014   Category: News, Asia, Japan   By Maya Ando

Japan’s US$1.26 trillion* Government Pension Investment Fund (GPIF) has selected the managers for its domestic equity investments under its amended management structure. The pension has selected 14 active funds and ten passive funds to capture higher yield in response to escalating payouts of public pension benefits.

Each manager is expected to invest between 200 billion yen (US$1.9 billion) and 400 billion yen on behalf of the GPIF, which is seeking returns that exceed the market average. The GPIF will draw down 5.5 trillion yen in reserves this fiscal year, according to a funding plan announced early last week (week beginning April 7). Concurrently, GPIF also disclosed that the fund has begun investing in J-REITs.

The GPIF’s revised management structure is based on research entitled Effective Implementation of Non-Capitalization Weighted Index / Benchmark conducted by MSCI Inc and Mizuho-DL Financial Technology Co Ltd. The pension fund has implemented a wide range of indices within its indexing strategy on both passive and active investments. For passive investments, in addition to the Tokyo Stock Price Index (TOPIX), three new indices including JPX-Nikkei 400 were employed. For active investments, in addition to the “traditional active management” category, a new category “smart beta active management – an investment approach to effectively capture mid to long-term excess returns through indexing strategy”, has been established.

For traditional active management, GPIF has selectively chosen managers from a wide range of investment strategies such as a strategy for increasing shareholder value via engagement with company management. Simultaneously GPIF has introduced a performance-based fee structure for some active managers.

The selected domestic equity active investment managers, who will use the TOPIX as a benchmark, are Eastspring Investments, Invesco Asset Management (Japan), Capital International, Natixis Asset Management Japan. Nikko Asset Management, FIL Investments (Japan), Russell Investments Japan, and DIAM Co Ltd. Seiryu Asset Management and Mizuho Asset Management have received new mandates to follow the Russell Nomura Small Index, while JP Morgan Asset Management (Japan), has been appointed to track the performance of the Russell Nomura Large Value Index.

For fund’s smart beta active strategy, Goldman Sachs Asset Management, Nomura Funds Research and Technologies, and Nomura Asset Management, will track the S&P GIVI Japan Index, the MSCI Japan Small Index and the Nomura RAFI Reference Index respectively.

For its passive investments, using TOPIX as the benchmark, DIAM Co Ltd, Sumitomo Mitsui Trust Bank, Mitsubishi UFJ Trust and Banking Corporation, BlackRock Japan, and Mizuho Trust & Banking have been reappointed. DIAM Co Ltd, Sumitomo Mitsui Trust Bank and Mitsubishi UFJ Trust and Banking will follow the JPX Nikkei 400 Index, and Blackrock Japan and Mizuho Trust & Banking will track the MSCI Japan Index and the Russell Nomura Prime Index respectively.

* As of September 31, 2013