What Is the Government Pension Investment Fund (Japan)
The Government Pension Investment Fund (GPIF) is the pension fund for Japanese public sector employees. The GPIF pension fund is the largest pension fund in the world, with approximately $1.4 trillion in assets under management as of 2018. The GPIF contributes to the stability of the Employee's Pension Insurance and National Pension programs.
Understanding the Government Pension Investment Fund (Japan)
The GPIF invests in a mix of domestic and international stocks and bonds, as well as FILP bonds. A large amount of the GPIF's assets are invested with external money managers, who are selected and monitored by GPIF managers. Only a small portion of the assets in the domestic bond category are invested by in-house investment managers. The majority of the GPIF's assets are allocated to passive investment funds that seek to mirror the returns of a market index within each asset class.
The Government Pension Investment Fund Operating Principles
The overarching goal should be achieve the investment returns required for the public pension system with minimal risks, solely for the long-term benefit of pension recipients. This principle is meant to preserve the stability of the system. Below are a few other key principles:
- The primary investment strategy should be diversification by asset class, region, and timeframe. While acknowledging short-term market fluctuations, investment returns should be more stable and efficient by operating on a long-term investment horizon, while at the same time securing sufficient liquidity to pay pension benefits.
- The GPIF formulates the policy asset mix and manages and controls risks at the levels of the overall asset portfolio, each asset class, and each asset manager. The GPIF employs both passive and active investments to benchmark returns set for each asset class, while seeking untapped profitable investment opportunities.
- By fulfilling these responsibilities, the GPIF should be able to continue to maximize medium-to long-term equity investment returns for the benefit of pension recipients.
GPIF Institutes Performance-Based Management Fees
The GPIF instituted a new fee structure in April 2018. Under the new system, funds that achieve their predetermined investment return target will receive a similar level of fees as they receive now. If the actual return exceeds the target, however, they will be paid progressively more in proportion to the results. A missed target will lead to lower fees, but compensation will still be comparable to the fees paid to passively managed funds with similar amounts of assets under management. Investment returns are evaluated using a time frame of three to five years.
Actively managed Japanese stock funds used in GPIF assets did not earn their keep over the past decade, with investment returns undershooting index growth by 0.04 percentage points, despite higher fees.