GPIF’s Mizuno: Why performance fees make sense

The CIO of the Government Pension Investment Fund explained to AsianInvestor his thinking behind its performance fee structure and whether he will stay on as CIO.
GPIF’s Mizuno: Why performance fees make sense

Under chief investment officer Hiromichi Mizuno, the world's largest pension fund has sought to change market dynamics in several areas of the investment industry, in order to try and change the system.

A particularly key one? Asset manager fees.

The Government Pension Investment Fund (GPIF) introduced performance-based fees in April 2018. It offers a particularly low base fee for active asset managers (the organisation declined to reveal the amount, but said it varies per asset class), but it reverts to a regular level if the manager achieves its target alpha, and the pension fund pays more to those that deliver above the regular level.

Mizuno told AsianInvestor the purpose is not to reduce fee payment, but incentivise.

Hiromichi Mizuno, GPIF

“Last year, we saved management fees of $200 million in total, which a lot of people think is a success for us. But in reality, it is not a success because that means that our managers did not perform as good as they proposed,” he said. 

Instead, Mizuno wants to reward managers that deliver genuine outperformance, while not overpaying those that don’t.

“It takes up a lot of our internal resources to select and monitor the active managers. So I tried to change the rule of the game so that we have better chance of winning alpha net fee from our active portfolio,” he said. 

His scepticism seems warranted. Historically, less than 20% of GPIF’s active managers delivered the targeted alpha they proposed while the pension fund’s alpha net of fees has been “pretty much zero”. 

“I said: ‘That’s too poor in order for us to just have faith in them’.” 


Mizuno is targeting fees because he believes there can be a lack of alignment between asset owners and active managers in the public market.

This fee structure will promote discipline to the active managers to take enough risk while they also deliver.

It’s something that stood out to him due to his private equity background, where private equity general partners have to put their own money into investment vehicles alongside their institutional clients.

GPIF’s performance-based fee structure also means fewer resources need to be spent on monitoring active managers, which frees up its active manager team to expand its coverage. 

“We wanted to have a self-governing mechanism so that we can go much more hands-off in our asset manager monitoring, so that we don’t have to bother our asset managers on a daily basis,” said Mizuno. “This fee structure will promote discipline to the active managers to take enough risk while they also deliver.”

GPIF has started offering a multi-year contract of up to five years for managers that accept the structure. That’s part of its efforts to align managers with its longer-term investing goals.

“On the one hand we are talking about long-termism, but on the other hand our contract with asset managers are basically annually renewable,” said Mizuno. “This does not give them a sense of long-term commitment from asset owners. We want to make sure that we give them a long-term mandate, so they don’t have an incentive to … manufacture a short-term return at the expense of long-term sustainable performance.”

“Alignment of interest between GPIF and asset managers is by far the most important agenda for me,” he added. “Everything we do has some aspect of enhancement of alignment of interest.”


Mizuno’s changes he helped shepherd in, and his enthusiam to develop the CIO role beyond its traditional boundaries proves he remains full of passion and ideas. 

A question observers may ask is whether he will he get the opportinity to keep delivering them. 

On October 1 2019, Mizuno’s tenure as CIO was extended six months. That relatively short-term reflects the fact that GPIF executive directors cannot be extended further than the tenure of Naruhito Takahashi, the current president. His tenure expires at the same time as the pension’s current five-year plan, on March 31, 2020. 

When asked directly whether he still has the desire to be CIO for GPIF after March 2020, Mizuno laughed.

“I don’t know. To be honest, I only expected to do this job for two years when I joined. I always had the view that I am not a conventional CIO. I try to do what every other CIO probably wouldn’t do.

“So far, I have not run out of what I wanted to do and what I think I can do differently, [but] I always wonder [if] it would be a much nicer life if I go back to the private sector.” 

This story was adapted from an interview with Hiromichi Mizuno of GPIF that originally appeared in the Winter 2019 edition of AsianInvestor magazine. 

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