Japan’s $1.3 trillion Government Pension Investment Fund, GPIF, has announced plans to boost its stewardship role by establishing a Business and Asset Owners Forum through which it will liaise with investee companies.

The world’s biggest pension fund will begin by engaging with a cohort of 10 companies this September, exactly a year on from when the fund signed the United Nation backed Principles for Responsible Investment, PRI, the world’s leading proponent for responsible investment.

“We would like to contribute to an optimal and efficient investment chain through our stewardship activities by feedback of opinions and requests from companies of the forum to our external asset managers,” said the fund in a statement. In line with Japanese legislation, the portfolio is managed by external managers.

GPIF has also announced plans to set up a Global Asset Owners Forum, whereby it will meet with global pension funds renowned for pursuing environmental, social and governance (ESG) strategies to share ideas.

For the first time the fund is seeking “an exchange of opinions with non-Japanese asset owners which have made advances in ESG investment. We will utilize their sophisticated expertise and also feed discussions with non-Japanese asset owners, to companies and our external asset managers,” said the fund.

The Forum comprises around 20 asset owners including CalSTRS, CalPERS, Florida State Board of Administration, State of Wisconsin Investment Board, Canada’s Ontario Teachers’ Pension Plan, the UK’s Universities Superannuation Scheme and Dutch asset manager PGGM.

“I sincerely expect that the establishment of the two forums will lead to more advanced activities for our stewardship responsibility for beneficiaries, and that we contribute to sustainable growth and fostering corporate values of investee companies through optimising the investment chain,” said GPIF president, Norihiro Takahashi, in a statement. Norihiro took the helm at the GPIF in April.

English-language version

Jo McBride, publisher of the Japan Pensions Industry Database and a seasoned commentator on Japan’s pension funds believes the move is another gradual step towards more responsible investment by some of Japan’s biggest pension funds.

He argues that the statement is notable for its English-language version when most publications from the fund are in Japanese, and also that the statement included a reference to fiduciary duty.

“This is a concept fundamental to investment regimes elsewhere, but of which Japan still lacks a legal definition,” he says. “As the fund appears to be the only owner involved in the group it might be better named the Business and GPIF Forum.”

McBride recently reported that the GPIF plans to run a portion of its domestic equities portfolio on an ESG basis.

The announcement came at the same time as the GPIF announced losses of more than $50 billion for the 12 months to March 2016, its worst year since the global financial crisis. The GPIF returned -3.81 per cent, amounting to a loss of $51 billion on its $1.3 trillion assets, and blamed the fall on the strengthening yen and tumbling share prices.

As of March, GPIF had a 21.75 per cent allocation to domestic equity – the fund can adjust the weighting in domestic equities by 9 per cent in either direction – while foreign equity accounted for 22 per cent of assets, and foreign debt 13 per cent of the total portfolio.

Although the fund has sought to correct its bias toward government debt, Japanese bonds still account for almost 40 per cent of assets at 37.55 per cent. Almost 80 per cent of GPIF’s holdings are in passive investments.

The fund doubled its holdings in equity to 50 per cent of the portfolio and cut its allocation to bonds, as part of a strategy to take on more risk and invest less in low-yielding domestic bonds. Before the shift in strategy in 2014, half the fund was invested in Japanese bonds, mainly government debt.

The fund targets a long-term real return of 1.7 per cent and although its latest performance was below that target, GPIF has returned an average of 2.6 per cent over the past 15 years.

For the first time the fund has also disclosed individual stock holdings and the issuers of the bonds it held as of March 2015. GPIF’s biggest investments in Japanese equities were Toyota and Mitsubishi, while outside Japan it was US tech giant Apple.

Finance should not be about making money, according to Nobel Laureate, Professor Robert Shiller, so how can the industry move to integrate missions for society within financial institutions? Shiller will address the Fiduciary Investors Symposium at Yale School of Management from October 23-25.

Historically, financial innovation has benefited many people, but it has moved away from a profession where fiduciary responsibility matters, to where making money matters. According to Nobel Prize-winning economist, and author of Irrational Exuberance, Robert Shiller, finance should not be about making money.

So when does financial innovation create complexity and opaqueness that harms society and when can financial innovation be used as an enabler of equality, a solution to the current problems of jobs and inequality? Shiller will discuss these ideas and challenge the industry to move to integrate missions for society within the structure of financial institutions.

Shiller, who warned of both the tech bubble and the housing bubble, says that irrational exuberance among investors has only increased since the 2008-09 crisis and contends that psychology-driven volatility is an inherent characteristic of all asset markets.

He will give a keynote address at the Fiduciary Investors Symposium at the Yale School of Management from October 23-25.

The event brings global investors together to examine best practice investment strategy and implementation, including the latest thinking relating to asset allocation, risk management, beta management and alpha generation. It has become recognised as an event that challenges the influence and responsibility of fiduciary capital and explores the evolution in investment management.

With great fiduciary power comes great responsibility

Managing assets as a fiduciary comes with a complex range of responsibilities and commitments. This conference examines the holistic approach to fiduciary investing and how investing has and should evolve. This includes the wider responsibilities of long-term investors in stabilising financial markets, and the impact of investments on social welfare and environmental management.

The Fiduciary Investors Symposium at Yale School of Management will focus on the relationship between finance and the broader economy.

The event will draw on the school’s focus on finance within the economy and broader society, and highlight the work of Shiller and William Goetzmann, who say there is a need to discuss structural changes to finance in order to prevent a recurrence of the global financial crisis.

Confirmed speakers from Yale include:

  • Zhiwu Chen, Professor of Finance, Yale School of Management
  • William Goetzmann, Edwin J. Beinecke Professor of Finance and Management Studies and director of the International Center for Finance, Yale School of Management
  • Roger Ibbotson, Professor in the Practice Emeritus of Finance, Yale School of Management
  • Tobias Moskowitz, Visiting Professor of Finance, Yale School of Management
  • Robert Shiller, Sterling Professor of Economics, Yale University
  • Jeff Sonnenfeld, Senior Associate Dean for Leadership Programs and Lester Crown Professor in the Practice of Management

Importantly, the event will cover issues pertaining to long-term investment and fiduciary duty. In particular there will be sessions focusing on a report from the World Economic Forum on the future of investing, next generation environmental, social and governance (ESG) integration and the UN sustainable development goals, and the role of investors in holding Wall Street to account.

The event, which is only open to asset owners, will use case studies to highlight best practice as it applies to asset allocation and investments, governance and decision-making.

Held over three days, the event enables institutional investors to engage with industry thought leaders in academia and practice in a collegiate environment that promotes shared discussion. The on-campus venues facilitate a unique space for different thinking and discussion, and the event includes tours of various university faculties.

For more information about the program, and to register, visit The Fiduciary Investors Symposium website

Program-related investment, PRI, characterised by high-risk private sector investments for the specific purpose of furthering the aims of foundations and endowments is gaining popularity in philanthropy.

“Bill was a very strong advocate of looking for opportunities in the private sector. Investing here was an important piece of the strategic direction of the Gates Foundation,” recalls Dick Henriques, former chief financial officer of the Bill and Melinda Gates Foundation, one of the largest foundations in the world, and now a Senior Fellow at the University of Pennsylvania’s Center for High Impact Philanthropy.

During his tenure, Henriques, who worked separately from the Bill and Melinda Gates Foundation Trust that manages the $39.6 billion endowment, grew the PRI portfolio from $50 million to $700 million between 2010 and 2014 in a strategy that sought to better align the foundation’s investments with the Gates philanthropic mission to alleviate poverty and improve health and education around the world.

“There is around $800 billion in private foundations in the US. Around 1 per cent of that is currently exposed to PRI and it wouldn’t take much to increase that to 3-4 per cent,” says Henriques who has valuable advice for chief investment officers and foundation boards under pressure to use their balance sheet to further the mission of the foundation.

If PRI is a growing passion of the wealthy individuals behind foundations and endowments (the US has 87,000 such institutions), it is a growing source of concern for their chief investment officers, with a primary focus on growing and preserving assets.

The US rules that to be eligible for tax relief, foundations must pay out at least 5 per cent of the value of their endowment annually; a challenge amid today’s market volatility, low returns, and given that many foundations have little source of income unless they conduct fundraising activities. And PRI means backing companies that traditional investors and venture capitalists avoid because the charitable goals of the foundation or endowment, not financial returns, are the primary goal.

Money well spent

“These investments are either high or low risk with typically a low return. If the charitable purpose is achieved we would say the money has been well spent,” says Henriques, articulating the core expectations behind PRI.

But that is not to say that some of the investments don’t make significant returns. Last May the Gates Foundation revealed the sale of an original $5 million stake in biotechnology firm Anacor Pharmaceuticals, made in 2013 to help fund the company’s research efforts into parasitic diseases, had netted an $85 million return.

“This shows what is possible, although it is not expected,” says Henriques, adding that proceeds from investments go back into the foundation’s pool for future programs.

Foundations and endowments need to separate PRI from the return-seeking part of their endowment, suggests Henriques. Investment officers, mindful of seeking the maximum return, will always be difficult to convince of the benefits of the asset.

“This puts a restraint on PRI because it is then viewed through a conservative lens. At the Gates Foundation we carved out a portion of the asset base and dedicated it to PRI. It became separate from the investment process and was therefore not a source of tension.”

The Gates Foundation currently has some $1 billion in 47 investments, of which 18 are equity stakes or convertible debt. That compares to the Rockefeller Foundation’s PRI portfolio which stood at $23.9 million in 2013.

Another requisite is building the internal capacity PRI requires. PRIs are typically generated and advocated by program staff with sector expertise on the ground, rather than investment teams.

“These are the same people who typically make grants. They are not trained to make private sector investments. The due diligence is different; there are legal hurdles to clear; there are a set of issues that make it more complex,” he says.

At the Gates Foundation, program staff became actively involved in the investment process alongside the Foundation’s sophisticated finance team, to the extent that program officers actually led on investments.

“This ability to build capacity and expertise is not something most private foundations can do,” he admits. Transaction costs are also “high, daunting and complicated.” He grew the Foundation’s PRI team from two full-timers to 12 in a team that prioritised investment in health to begin with.

“I would like to see pilots around more efficient and effective ways to execute a transaction,” he says.

Measuring the impact of PRIs is another challenge.

“There is a lack of data, apart from anecdotal reports. There has been no rigorous collection of financial and social outcomes to get a handle of what is happening in the PRI arena.” Along with more PRI programs, Henriques believes foundations and endowments need to do much more responsible investment.

“They’ll do it, but they are reactive more than active in this field.”

 

When the $62 billion not-for-profit super fund QSuper opens its doors to all comers from June 30 next year, the fund’s chairman, Karl Morris, does not expect it to be swamped by new membership applications or transfers.

The 550,000-member QSuper has been ready to become a public-offer fund for many months; the timing of the Queensland government announcing the date for the change was more to do with waiting until another fund – LGIAsuper – was properly prepared to go public-offer on the same date. While QSuper caters to employees of the Queensland state government, the smaller ($10 billion) LGIAsuper is the fund for Queensland local government employees.

“Personally, I don’t see that we’re going to get an absolute flood of new members coming into QSuper overnight,” Morris says. “It’s a very competitive space. [But] I might be surprised; there might be a bit of a windfall from people we know have been wanting to join the fund but haven’t been able to.”

Morris says that initially, at least, becoming a public-offer fund will shore up QSuper’s defences against leakage.

“We’ve had $30 million we’ve had to send to other super funds because [members] are no longer government employees,” he says. “I don’t like doing that when I have those people saying ‘why can’t I remain?’ I think it’s bloody awful that we’ve got to shift them out. I also think it’s bloody awful also that we can’t take relatives on as well.”

Share and share alike

Being an open-offer fund will mean QSuper has to more actively raise its brand awareness, “but I like to think we’ll do that in a responsible and reflective way, reflecting our members’ best interests,” says Morris.

“We will do a significant amount of analysis and ask for feedback from our members on what they think is appropriate in increasing our brand awareness, particularly in Queensland,” he says.

But don’t expect to see the fund’s branding appearing on football players or a sports stadium. What being a public offer fund might allow QSuper to do more efficiently, however, is offer to other funds some of the solutions that it has developed for its own members.

“For example, our new insurance business,” Morris says. “At the moment we’re just going to insure our own members, but what’s to say another super fund doesn’t come to us and say ‘we have a very aligned membership base; we don’t want to go to whoever; would you think about covering our members as well?’ It will allow us to do those sorts of things. And in the insurance business it is a capacity business, a scale business.”

That sharing approach could extend to other aspects of fund operation as well, Morris says, overcoming some of the inefficiencies inherent in having every fund independently trying to solve the same problems as all the other funds.

“There’s a lot of us reinventing the wheel,” he says. “I look at other industries that I’m involved in that have the same problems. There’s not as much sharing that goes on. We’re all solving the same issues and we’re all spending the same amount of money solving those issues. I would have though that in the not-for-profit world we’d have been a little bit more sharing.

“I think that’s one of the things QSuper is very good at. We don’t feel that everything we do is proprietary; we’re there to help other superannuation funds with things that we think we’re a little bit more cutting-edge on.

“There’s been a couple of great examples that have been announced recently, [such as the income account transfer bonus], and some other tax things that we’ve been able to do that are a great benefit to our membership base, that I don’t see as being particularly proprietary to us. It’s just that we’ve done a bit more of the heavy thinking and lifting than some others.”

QSuper boardSuper funds need to think about ‘whole member’

Morris says all superannuation funds, not just QSuper, need to think more creatively about the value they offer to fund members beyond just investment returns and retirement account balances. He says funds need to start doing more to address the “whole member”.

“Some of the headwinds we’ve got at the moment, with lower contributions going forward, everyone’s talking about lower returns going forward, and I would think our contributions are going to be less going forward, our returns are going to be less, [so] what are we going to do for our members that’s going to be bigger and better that’s going to help them? Whether it [is] through financial literacy and education, [or] giving them personal advice. How do we deliver that personal advice, whether it is through digital, or direct? There are a number of touch points there.

“I think were going to have to invest our members’ money in terms of maybe we’re not going to provide them a return in terms of increased [account balances] but value in other forms, that’s going to be cheaper mortgage rates, or exposure to other bits of advice for their life.”

In this context, super funds will look increasingly like other vertically integrated financial institutions, but Morris says he believes funds come from a better starting position than others.

“Superannuation is going to be the basis of it,” he says. “Superannuation funds are trusted, I think, over banks. Banks are going to try aggregation, and they’re going to go hard at that. We’re already getting a bit of pushback from people.

“On [QSuper’s online management tool for members] Money Map, you can have mortgages and leases and assets and your whole financial dashboard.

“At the moment we don’t have access to it, it’s just for [the member], but at some stage [the member] is going to turn that on and say, you know, I do want you to have a look at that because I think you’d actually think differently about my super if you knew all about this.

“If I had to say one thing about us going forward [it is] that personal advice – structuring things for your financial situation – is the most important thing that we can do. The cohorts were the start; Money Map is the second.”

Not rushing into robo advice

An aspect of its operations that QSuper will not be sharing with other funds is financial advice for members. With 550,000 members and 45 advisers, they’re going to have their hands full just meeting in-house demand. And while other funds are actively exploring the implementation of robo advice offerings to help get more advice to more members, Morris says QSuper isn’t rushing in.

“I went on behalf of QSuper and visited a couple of the robo advice groups in the US last year, and it’s something that we’re keeping an eye on,” Morris says. “At this point in time, I can’t quite see how it works for our members when we have such good default options, which is kind of what robo advice is trying to do. It is something we’re keenly watching, potentially I think more for the post-accumulation stage.

“When we were in [the US], the problem with robo advice is it’s great if you give them cash – bang, done – but if you’ve got assets that need to be transferred, it’s a complete nightmare. It’s quite a conundrum that a lot of us have, as to how best to use it. And to some extent it may be best utilised by the actual adviser, rather than by the member. So that’s what we’re keeping an eye on.”

No ‘magic pudding’

Morris says the board and management of QSuper are “spending a huge amount of time” considering better retirement options for fund members. Morris says that while about 3 to 4 per cent of its members currently move into decumulation phase each year, that number will increase.

“The most interesting thing now is when someone retires – and you’ve got to think a lot of people are going to retire and also require the age pension – how [do] we give them some insurance on longevity?” he says. “So we’re spending quite a bit of time looking at structuring products that could assist those of us who are lucky enough to live a little bit longer.

“I don’t think there is any magic pudding when it comes to it all. I look at the work that we’re doing and I think we’re at the forefront of some of that thinking. We’ve looked all around the world for how other people have done it. We’ve been very close to the Rotman School of Management out of University of Toronto, and looked at how other funds have tried to solve this. Unfortunately, a lot of other funds around the world are DB funds and don’t really have the same issue that we have.”

Morris’s role as chairman of the QSuper board stands out in a CV that also includes being executive chairman of Ord Minnett, a director and master member of the Stockbroker’s Association of Australia, and deputy federal director of the Liberal Party. He is on the board of the Catholic Foundation of the Archdiocese of Brisbane, is a governor of the University of Notre Dame Australia, and patron of Bravehearts.

But he is also on the board of the RACQ, and “there’s another great example of a member-based organisation, a not-for-profit”, he says.

“So I had a very good understanding of what the differences would be coming into a not-for-profit, purpose-driven organisation,” he says. “The culture and the differentiation of QSuper to a lot of the other funds was something I understood, and culturally was very aligned to, so I was attracted to it on a number of different levels. And also just the fact – as you put it – I’ve been on the ‘dark side’.”

Morris says that despite their very different commercial imperatives, he sees some parallels between Ord Minnett and QSuper.

“QSuper was attractive to me just due to the fact that the one thing about Ord Minnett is we also have this culture that the client comes first,” he says. “It mightn’t be member comes first, but client comes first.

“And I was very much attracted to [QSuper] for the fact that I knew it wasn’t broken. When I went into QSuper there was nothing to fix. It is an unbelievably, extremely efficient, culturally aware fund. Whichever way you look at it, it is an extremely busy place. The insurance that we’ve done; IT upgrades that we’re doing continuously; the open offer, changing all sorts of architecture within the business; there’s a lot happening within the fund and it’s an exciting place to be, at the forefront of some of the things we’re doing better for our members. That was the attraction.”

The Public Employees Retirement Association of New Mexico, (PERA), is in the process of changing its asset allocation, in line with a new strategic allocation put in place in April, that cuts the number of portfolios from eight to four and reclassifies assets as illiquid and liquid, rather than traditional and alternative.

“We’re keeping it simple,” says Jon Grabel, chief investment officer at the $14 billion Santa Fe-based fund, which runs 31 defined benefit retirement plans for state employees.

The new allocation is divided between a 43.5 per cent allocation to global equity, down 10 per cent and comprising low volatility, as well as hedged equity and private equity, a 21.5 per cent allocation to risk reduction and mitigation comprising core and global fixed income and cash, a 15 per cent up allocation to illiquid and liquid credit strategies up 7 per cent, and a 20 per cent allocation to real assets, up from 13 per cent.

Part of the changes in the equity allocation include a new low volatility and other factor-based strategies that will account for 4.4 per cent of the total portfolio. Two thirds of the public equity portfolio is indexed.

“We are a mature pension fund and the benefits we pay exceed contributions, and we are mindful of volatility and holding adequate liquidity,” says Grabel, who joined PERA two years ago, after holding roles in investment banking and private equity in New York.

“We have increased the amount we index. Over the long-term active management for highly efficient assets doesn’t really make sense.”

Best performers over the past year include real estate and private equity, with the private equity allocation returning 14 per cent in 2015, adding to a run of strong performances over the past five years in a strategy that doesn’t include any co-investment.

But in a shift, and despite Grabel’s acknowledgement that private equity “plays an important role within PERA’s diversified investment program,” PERA is adjusting strategy to focus more on the non-US allocation, in emerging markets particularly.

He says the fund is also looking for more diversification in the real assets portfolio, adding more to timber, infrastructure and farmland.

 

Private equity not a ‘silver bullet’

“We are keeping the core US buyouts static. Many LPs believe private equity is a silver bullet, but I don’t believe this is the case. It is important to remember that many investment opportunities are cyclical. I am not stating that we are in a private equity bubble, but we may be in a period of excessive demand, excessive supply and excessive expectations.”

He also questions the fees.

“The average private equity fund in the fundraising market is over $3 billion” and “the average hold time for private equity investment is decreasing,” he says. These two factors result in general partners (GPs) raising more funds in quicker succession pushing up management fees which have become “a source of substantial wealth for GPs, regardless of fund performance.”

Where he favours private equity, is the access it gives to industry verticals that are underweight in the public markets like healthcare and consumer discretionary sectors in emerging markets. He also believes the fund has an advantage in the smaller deals.

“At $14 billion PERA is a sizeable investor, but we are sufficiently small in the context of the $3 trillion private equity industry and the $25 trillion US retirement industry. We can concentrate on subsectors that are immaterial for institutions that are three, 10 or 20 times our size.”

An example of the smaller fund advantage is in early stage venture capital, he says.

“The mega institutions find it harder to allocate because of the administrative burden. We can take advantage of niche or capacity constrained areas like venture capital or lower mid-market private equity – these strategies where it is difficult for larger asset owners to take advantage.”

PERA uses external managers throughout the portfolio, with no plans to bring any allocations in house.

“Very few organisations have the economies of scale for effective internal management of passive strategies. The costs related to internal management are not just to do with an increased headcount, but include the risks and tracking errors associated with mandates. Additionally, active strategies require proprietary information and few public pension funds have that type of unique data,” he argues.

Where Grabel is active is in the asset allocation, tightening the guidelines on managers and clawing back on the tracking error he affords.

“Many active managers have generated alpha by introducing different security types. In fixed income this could be high yield or emerging market debt. But these are really asset allocation decisions and not for managers to make.”

In 2015, the fund returned 1.8 per cent and generated investment gains of approximately $0.3 billion net of investment fees and expenses in a performance below the 7.75 per cent actuarially required annual return hurdle, and which compares to 10 per cent returns for both the three and five-year periods.

Pensions expert, Hidekazu Ishida, talks about the state of corporate pension funds in Japan – from where they’ve been to where they’re going – and discusses some popular investment strategies.

“Japan’s corporate pension funds are contracting; they used to have half of their exposure in equity, but now they stick to safe assets,” says Japanese pensions expert Hidekazu Ishida, a former investment officer for the ¥320 billion ($3 billion) Osaka Gas Pension Fund, a defined benefit fund for Japan’s second largest gas utility, serving seven million customers in the Kansai area.

Ishida left to pursue his own career in 2015, but during his decade-long tenure, he oversaw the 1990s’ high of deregulation in the industry – when Japanese corporates were allowed to manage their own pension funds for the first time, and asset managers piled into the sector – to today’s gradual shrinking of Japan’s corporate pension funds.

Something he attributes to the ageing population and pension payments exceeding contributions, long-term low interest rates and the rise of defined contribution schemes.

“DB schemes in Japan are a dying species,” he says.

Assets at Osaka Gas are portioned between a 51 per cent allocation to bonds and deposits, with a significant amount dedicated to cash flow, a 31 per cent allocation to equity, and a 17 per cent allocation to real estate.

Popular strategies among Japan’s corporate pension funds include: multi-asset strategies offering little risk but stable returns, which although low are a preferred alternative to low bond yields – or equity risk.

Ishida says that corporate pension funds’ success with private equity has been “slow”.

Osaka Gas began investing in private equity in 2000, but didn’t make a meaningful return until 2012, he says.

Ishida observes that corporate funds favour hedge funds in their allocations for the liquidity they offer, with typical allocations of between 5-10 per cent of their assets. He also sees growing demand for smart beta strategies in Japan.

“It is possible to manufacture an alpha stream that seems to be stable, and they are relatively cheap,” he says. “Given the rate of sales activity, I think this is a new area.”

Yen a ‘safe harbour currency’

Many pension funds have also been caught out by not sufficiently hedging assets denominated in foreign currencies.

“Funds should have hedged more of their currency exposure last year. The Yen is a safe harbour currency that has been strengthening for the past six months, hurting overseas asset performance and helping to amplify losses. Hedging costs are so expensive – and it limits investors’ ability to go abroad. Going overseas shouldn’t mean that investors take currency risk, but a lot do.”

Ishida also notes another concern among funds since Japan adopted negative rates in January to spur spending and inflation. Some Japanese banks are poised to start imposing charges on the money they hold for clients such as pension funds, in a bid to limit the costs they are incurring from the Bank of Japan’s negative interest rate policy.

“Negative interest rates have forced banks to introduce a surcharge for deposits and short term liquidity. I don’t know what this means for investors yet,” he says. Mandates are typically outsourced, explains Ishida.

“There is no in-house management, because legally pension funds have to outsource all their mandates. Pension funds are not supposed to stock pick, although they can select their managers. Some large funds are allowed to run their own passive strategies, and firms like Panasonic have developed their own investment management subsidiaries, to run theses passive mandates.”

World’s biggest pension fund

Japan’s government recently put off a plan to let its $1.1 trillion public pension fund, the Government Pension Investment Fund (GPIF), buy and sell stocks directly, following criticism that the move could lead to excessive state influence on the market.

The legislation would have allowed the GPIF to directly buy and sell stocks, in a reform that would cut down on fees paid to managers and allow the fund to constructively interact with corporations and improve governance.

The GPIF is also barred from investing directly in assets such as real estate, infrastructure and private equity.

Current asset allocation at the world’s biggest pension fund is 39 per cent in domestic bonds, 4.5 per cent short term assets, 13.5 per cent international bonds, 21.4 per cent domestic stocks and 21.6 per cent international stocks. The GPIF plans to announce its fiscal-year results at the end of July, with market expectations that the fund will report a loss. In 2014 it announced a shift from bonds into equity as it sought higher returns. The fund posted a 12 per cent return in the year through March 2015, but it has been hit since by the downturn in equities.