Home ListingApril 7, 2014

Japan’s GPIF Appoints Smart Beta Managers

<em>The $1.3 trillion fund has shaken up its equities management amid pressure to obtain higher returns.</em>

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(April 7, 2014) — The Government Pension Investment Fund (GPIF) has overhauled its $214 billion Japanese stock portfolio, adding new managers and introducing smart beta strategies.

The world’s largest pension fund—running more than $1.3 trillion in assets—has decided to reduce passive investments that track the Topix index, according to an April 4 statement.

Its more traditional active investments are to be streamlined to make room for smart-beta strategies, the GPIF said.

Goldman Sachs Asset Management, Nomura Funds Research and Technologies, and Nomura Asset Management will run the smart beta strategies.

Goldman Sachs will use the S&P GIVI Japan index as its benchmark, which weights stocks based on their “intrinsic value” calculated by assessing the value of each company’s assets and their forecast earnings growth, according to the website of S&P Dow Jones Indices, which created the gauge.

One of those new strategies involves a new benchmark, the JPX-Nikkei 400, which is designed to encourage investment in stocks with a high return on equity. Diam Co, Sumitomo Mitsui Trust Bank, and Mitsubishi UFJ Trust & Banking Corporation were appointed to oversee passive investments on that index.

BlackRock Japan was also appointed, and will use the MSCI Japan Index, while Mizuho Trust & Banking Company will invest based on the Russell Nomura Prime Index.

“We aimed for an overhaul that would show just what kind of stock investment GPIF is targeting,” Tokihiko Shimizu, director of general of the research department at GPIF, told Bloomberg on April 4. “We made bold changes.”

In total, GPIF selected 14 active and 10 passive investment managers, eight of which had existing mandates from the fund, according to the statement. It also said it will make passive and active investments in Japanese real-estate investment trusts.

The push into alternatives follows its March 2014 decision to enter into a five-year, $2.7 billion infrastructure co-investment agreement with Canadian pension giant Ontario Municipal Employees Retirement System (OMERS) and the Development Bank of Japan (DBJ).

Under the agreement, GPIF will invest up to $2.7 billion in infrastructure opportunities chosen through a “unit trust” with the DBJ. OMERS will source and propose potential investments to the trust.

The revamped strategy comes amid pressure on GPIF to achieve higher returns to pay the pension payouts for Japan’s aging population.

GPIF is also planning to introduce a new performance-based fee structure for active managers, although there were no exact details listed in its statement. It currently pays fees to Japanese equities managers equating to 0.04% of the assets they oversaw in the year ended March 31, 2013, according to Bloomberg.