Japan GPIF Invests $3.7 Billion in Morningstar Gender Diversity Index

Japan’s $1.4 trillion Government Pension Investment Fund has allocated 500 billion yen ($3.7 billion) to track the Morningstar Japan ex-REIT Gender Diversity Tilt Index. The pension giant said it began passive management based on the index in March.

The index aims to pursue objectives that align with environmental, social and governance standards in reference to gender diversity and was constructed using the data and scoring methodology of Equileap, a provider of data and insights on gender equality. The index is designed to emphasize companies in the Japanese market that have strong gender diversity policies rooted in their corporate culture and that provide equal opportunities to employees, regardless of their gender.

GPIF said it made its decision to invest in the index after evaluating environmental, social and governance indices for Japanese equities based on the information submitted through the Index Posting System, a framework used by the pension fund to gather information on various equity and bond indexes.

According to Morningstar, the Japan ex-REIT Gender Diversity Tilt Index is comprised of 928 constituents, covering a range of domestic listed companies within 10 different sectors. The top constituents of the index are Toyota Motor, Sony Group and Mitsubishi UFJ Financial Group, which have weightings of 4.11%, 3.06% and 2.18%, respectively. Individual security weights are capped at 5%. The company said that with industry weights neutralized, the index has a low tracking error and low turnover ratio.

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“Based on our belief that the sustainable growth of investee companies and the whole market is crucial for the stable investment returns from assets under management, GPIF takes gender diversity, as one of the ESG factors, into consideration in its passive investment in domestic and foreign equities,” GPIF President Miyazono Masataka said in a release. “This adjustment of ESG portfolio is conducted as part of our risk management of the entire portfolio.”

Companies within the index are ranked in descending order by their Equileap Gender Equality Score and divided into five equally sized groups. The top group includes companies with the highest scores, while the bottom group includes companies with the lowest scores. The tilt factors are then applied by multiplying the weight of each company in the parent index by the tilt factor to determine its weight in the index.

Equileap assigns a gender equality score to companies based on 19 criteria among four categories with different weightings. Category A is gender balance in leadership and workforce; category B is equal compensation and work-life balance; category C is policies promoting gender equality; and category D is commitment, transparency, and accountability.

Eamples of the 19 criteria include the gender balance of senior management, the gender pay gap and policies around parental leave and sexual harassment. Equileap also investigates a company’s legal record and will place those involved in legal cases regarding gender-based violence and discrimination on what it calls the “Alarm Bell List.” Companies on that list are ineligible to be included in the index for a year.

The index is reconstituted every year in December and rebalanced quarterly in March, June, September and December.

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Tags: environmental, ESG, Gender Diversity, Governance, GPIF, Japan Government Pension Investment Fund (GPIF), Miyazono Masataka, Morningstar Japan ex-REIT Gender Diversity Tilt index, social

Pension funds worldwide fell slightly short of meeting their private equity allocation targets in the year’s first quarter due to uncertain macroeconomic conditions affecting institutional investment decisions, according to S&P Global Market Intelligence.

Among 365 global pension funds, the median allocation to private equity was $276 million, compared with a median target allocation of $280 million, according to S&P Global Market Intelligence and Preqin. The under allocation was attributed to a relative dearth of private equity and venture capital fund launches during the first three months of 2023, compared with the year-ago period. Only 30 funds with more than $100 million were launched worldwide during the first quarter, down from 450 during the first quarter of 2022.

The California State Teachers’ Retirement System and the California Public Employees’ Retirement System had the largest allocations to private equity during Q1 at $46.73 billion and $46.26 billion, respectively. The lowest allocation was $1 million from Burlington Employees’ Retirement System.

Despite having the second-largest allocation during the quarter, CalPERS had the largest under-allocation, missing its target by more than $11.3 billion, which was attributed to a recent increase in its private equity goal. In January, CalPERS announced it was increasing its portfolio’s allocation to private equity to 13% from 8%, beginning with the 2022-23 fiscal year.

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S&P Global Market Intelligence’s 2023 Private Equity Outlook Report, which surveyed 246 private equity firms, 129 venture capital firms and 131 limited partners, found that approximately 60% of limited partners with less than $500 million in assets under management said they will increase their allocation to private equity; however, fewer limited partnerships with larger AUM expect to do the same.

According to S&P, investor hesitancy was due to the uncertain direction of inflation and interest rates and the “denominator effect,” which overexposed some institutional investors to private equity as public markets fell.

“Whether the slight under allocation represents a temporary adjustment to the current investment environment or the beginning of an allocation reassessment remains to be seen,” the firm stated, noting that Preqin forecast a sharp decline in institutional global private capital fundraising to a 3.57% compound annual growth rate between 2022 and 2027, compared with 11.70% CAGR between 2015 and 2021.