Japan’s Government Pension Investment Fund (GPIF) is inviting pitches for investment mandates designed to strengthen its stewardship activities, starting with a call for passive managers of domestic equities.
In an environment where doubts remain about the strength of Japan’s commitment to change in the boardroom, the ¥145 trillion ($1.26 trillion) GPIF has committed – under Japan’s Stewardship Code – to encourage institutional investors “to fulfil their fiduciary responsibilities by promoting medium- to long-term growth of companies through engagement”.
The new requests for proposals, announced on GPIF’s website on Monday, are part of an initiative “to collect information on various investment strategies, to have more flexibility on manager selection and to have access to new investment ideas and expertise”.
The first phase will cover passive investment of Japanese equities, while the second phase will focus on active and passive investment of non-Japanese equities. The fund had around 24% of its AUM allocated to domestic equities at the end of December.
The registration system for phase one opens on March 27, and the review process starts on June 1. No time frame has been set for phase two. GPIF said registration for other asset classes would open in due course.
The fund is not disclosing at this stage how big the mandates will be or how many managers it plans to appoint.
Under the terms of the tender process, the fund said it would comprehensively review asset managers’ business models, including their investment process, stewardship activity policy, organisation and fee structure.
To qualify for consideration, firms need to manage at least ¥100 billion in assets from domestic and foreign pension funds (preferably), or other financial institutions, such as foundations.
The relevant fund must have a track record of five years and be at least ¥30 billion in size. In exceptional circumstances, performance data over a shorter period can be supplemented with simulation data, and funds with less than ¥30 billion may also be considered.
Japanese institutions have been using exchange-traded funds extensively for part of their passive equity allocation, said Jesper Koll of ETF provider Wisdom Tree last year. While the Bank of Japan is the dominant player in buying domestic equity ETFs, pension funds and insurance firms look set to step in with large allocations to global ETF strategies.
GPIF was seen to be making moves into smart beta in 2015. A spokesperson for the fund told AsianInvestor in November: "We have monitored the development of ETFs in Japan, and the creation of smart-beta ETFs or factor-based ETFs is interesting from an investment diversification perspective. However, we are vigilant that some ETFs, in particular actively managed ones, have higher costs and lower liquidity relative to cash equities or equity futures."
Last week the fund announced its results for fourth quarter of 2016, reporting a record-breaking ¥10 trillion in AUM growth. This was partly driven by a rise in the value of foreign-currency-denominated assets. The previous record of ¥7.6 trillion was achieved in the first quarter of 2013, in the first phase of euphoria over the Abenomics stimulus.