GPIF sets stage for EM infrastructure mandates

The pension fund wants fund-of-fund houses to offer information about emerging market infrastructure plus foreign bond investments, and it has launched an index analysis system.
GPIF sets stage for EM infrastructure mandates

Japan's Government Pension Investment Fund (GPIF) is looking expand its investment portfolio further into alternative assets, and this time it is targeting emerging market infrastructure.

On Monday (April 27), the world’s largest pension fund issued a request for information (RFI) to fund-of-funds (FoF) managers focused on emerging market infrastructure. It said it is looking to target “core infrastructure” that would “yield stable income”.

The pension fund also, on Friday (April 24), asked for managers to offer both active and passive investment ideas in foreign bonds – to which it is planning a big increase in exposure – while on April 23 it launched an index analysis system.

The request for emerging infrastructure, a fairly niche asset class – and one that many investors avoid because they see it as too risky – continues a pattern by GPIF of gradually expanding its exposure to alternative assets, such as private equity, real estate and infrastructure.  

The asset owner is allowed to invest up to 5% of its assets under management into such assets, and it has slowly been raising its exposure. However, there’s a lot more to do; alternative assets still only accounted for 0.49% of GPIF’s AUM of ¥168.99 trillion ($1.58 trillion) at the end of December 2019.

A GPIF spokesman confirmed that this was the first time the pension fund had requested an RFI specifically targeting emerging market infrastructure, but said it was “much too soon” to discuss how much it might seek to allocate to the asset class through potential investment mandates, or when it might be in a position to do so.

Under the details of the new RFI, aspiring FoF managers should supply details of their fund operations between April 23 and 12pm Japan time on June 12. After that period, GPIF will consider how to proceed, with a potential interest in selecting managers.

Meanwhile the pension fund said it had no deadline for new mandates for foreign bonds, assets that already account for 19.21% of its AUM. However, GPIF said on its website that it would look at diversifying its passive benchmarks and then start reviewing passive fund managers from May 22. 

This comes after the institution on April 1 confirmed it had increased its target foreign bond allocation to 25% from 15% (at the expense of Japanese bond exposure), on the same day as it announced its new CIO.


GPIF's decision to use fund-of-fund managers in a relatively niche asset class such as emerging market infrastructure appears to be a result of two considerations: its lack of internal expertise in this space, and the sheer size of its AUM.

"GPIF manages $1.5 trillion [with] less than 150 staff," noted the spokesman. "Although we are now allowed by regulation to invest in alternative assets as an LP [limited partner], we understand that FoF scheme is suitable for our potential emerging market infrastructure in terms of efficiently diversification of our investment assets."

It's a point the chief investment officer (CIO) of another Asia Pacific pension fund underlned. “GPIF is huge, so even 0.1% allocation to infrastructure would be $1.5 billion, which would be more than most funds around the world,” he said. “Using a fund-of-fund structure for some of this allocation makes sense if GPIF doesn’t feel like it has the skills and experience to make the allocations themselves.”

However the CIO added that such an approach might only work in the short-term. “In the long term it wouldn’t strike me as a sustainable strategy; there are two layers of fees and no upskilling within GPIF.”

His last point appears to be of importance to GPIF. As part of the RFI, the pension fund says that it wants information on the market size, return and track records of the underlying funds that FoF managers use to invest in emerging markets, as well as ideas on investment schemes.

It also wants knowledge transfer plans in case the company is approved to enter a partnership with the pension fund. It’s a point the CIO said was extremely important.

“In this context, an initial FoF relationship makes sense if you use it explicitly as a way to build up internal capabilities and experience. There is no substitute for experience, in my opinion.”


GPIF has previously opted to target infrastructure via direct funds and FoF managers.

In 2014 the asset owners invested in a developed market infrastructure unit trust alongside Canada’s Ontario Municipal Employees' Retirement System and the Bank of Japan, while in 2018 it appointed Stepstone Infrastructure & Real Assets and Pantheon as FoF managers for separate respective mandates into global core infrastructure funds. It also appointed DBJ Asset Management for infrastructure investments mainly in Japan.

The pension fund has sought to use FoFs elsewhere too. In 2017 the pension fund issued a request to private equity, infrastructure and real estate managers. It had sought to invest via fund-of-fund products, and said that it wanted its capital to be held in a separately managed accounts. It also specified diversified investments in private equity funds across various strategies around the world.

The CIO said likely FoF managers would depend on whether GPIF opts to target fixed income investments or equity ones, but he noted the likes of BlackRock, Blackstone or KKR would all be potential candidates.

All three fund houses declined to comment on their prospective interest or involvement with GPIF. However, a spokeswoman for KKR noted that Asian infrastructure in particular was "a new and emerging strategy for us". 

GPIF's infrastructure asset exposure, March 31, 2019 (latest available data) 

Source: GPIF Annual Report, fiscal 2018

While GPIF's RFI focused on FoF managers, it left the door ajar for emerging market infrastructure specialist fund managers. The pension fund said that it “ will also accept information on investment scheme other than FoF if deemed appropriate”.

That’s likely to perk up the ears of many direct infrastructure investors.

Such investment is much needed. The G20 estimates that $1 trillion to $1.5 trillion annually is needed to plug the infrastructure funding gap for developing economies, according to a paper published in August 2018, Private infrastructure financing in developing countries.

Romain Py, head of investments at African Infrastructure Investment Managers, said GPIF may of necessity need to focus on equity rather than debt. 

"It would be easier to invest into emerging market infrastructure via equity as debt/fixed income tend to be dominated by DFIs [development finance institutions] or local banks," he told AsianInvestor, adding that there is limited amounts of core infrastructure available. "This market tends to be dominated by the opportunistic, core-plus and value-added segments." 


The RFI followed a previous announcement by GIF about the launch of its Index Posting System (IPS) on April 23. The plan is to build the system into an effective database of information about indexes, the makeup and their performance that it can use to improve its analysis.

GPIF has to invest over 90% of its assets passively with external managers. The new database marks a major effort by the passive asset-reliant asset owner to better categorise and analyse the definition and performance of investment indexes.

The pension fund also appointed data provider FactSet to provide it with financial and non-financial information and benchmark data, including information on ESG. The GPIF spokesman declined to comment on what specific information it was seeking to gain from FactSet. 

Joe Marsh contributed to this article. 

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