Japan’s Government Pension Investment Fund (GPIF) is the latest major Asian institution to announce exceptional annual investment results.

The world’s largest pension fund had increased is active allocations in the past year, under the guidance of new CIO Hiromichi Mizuno.

The result was a 12% overall return for the portfolio, with Japanese and international equity exposures providing much of the excess return. It is the best result the fund has recorded since it was set up in 2001.

Assets under management for the GPIF to March 31 this year rose to ¥137.5 trillion ($1.1 trillion), an increase of $89 billion over the 2013 figure. Key to this increase was a 30.48% return from domestic equities.

GPIF set out a new strategic asset allocation plan last October, after years of inertia in the management of the fund. The decision to appoint a dedicated CIO, Mizuno and allow him to develop a team of in-house investment professionals is reaping the first fruits of that move.

In particular, the decision to upweight Japanese equities was rewarded with a 30% return for the year. And depreciation of the yen against the dollar boosted the overseas equities return to 22%.

A key part of the GPIF’s revised policy asset mix is a halving of its domestic debt exposures and a corresponding ramp up of its holdings of international stocks and bonds, as well as branch out into alternative investments. 

The revised medium-term plan has a target allocation to move from 60% domestic bonds to 35%, while increasing domestic stocks from 12% to 25%. At the same time, GPIF sought to increase its holdings of international stocks from 12% to 25% and international bonds from 11% to 15%.

According to the investment results for fiscal 2014, announced last Friday, domestic equities now account for 22% of the portfolio and international almost 21%.

The new management is also working on a plan to introduce alternatives to a maximum 5% of the overall portfolio. In this regard, GPIF has initiated a partnership with the Canadian Pension Plan Investment Board for infrastructure investing.

Other innovations for the giant fund include a move into smart-beta investing and the introduction of a performance-based fee structure for active managers, to replace its fixed-fee approach.

A large proportion of the GPIF portfolio (80.85%) is still managed passively, with 44% of the fund given over to passively invested domestic bonds. Within the active domestic equity component, the managers with the largest mandates include Goldman Sachs, Nomura, JP Morgan, Capital International and DIAM. For international equities, active managers include MFS, Wellington and Amundi.