GPIF to Move to Performance-based Fees for Active Equities Managers

Change could be finalized by April.

Over the summer, rumors surfaced that Japan’s Government Pension Investment Fund (GPIF) was considering a realignment of its investment portfolio to improve returns and make the portfolio more cost-efficient. Now, GPIF is ready to act.

Nikkei Asian Review is reporting that GPIF will shift to performance-based fees. That’s a change from the fund’s current system of paying fees based on the percentage of portfolio assets managed by a given manager. Initially, the change will only apply to GPIF’s relationships with its actively managed equities funds.

According to the report, GPIF plans to meet with its active equities managers and finalize the change in April 2018.

 GPIF has struggled to beat index returns in its actively managed equities portfolio and hopes that changing the fee structure will improve overall return. Historically, GPIF has used its large mandate size to get lower fees from managers.

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GPIF’s change to its active management fee structure is just the latest in a handful of changes the world’s largest retirement fund has made in recent months. Because of its ¥150 trillion size, GPIF is essentially forced to own the market, but that hasn’t stopped the pension from examining how it might make the market lead to better portfolio outcomes. In November, sources familiar with GPIF told the Japan Times that the pension was examining how to use artificial intelligence to improve its asset management processes. GPIF plans to introduce big data analytics into its financial modeling as early as April.

CIO reached out to GPIF for comment on these changes, however, no response was received by press time.

GPIF’s portfolio was up +2.97% for the second quarter of FY2017, according to its most recent performance disclosure.

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