A senior member of Japan’s ruling party has called for rule changes that would allow the country’s Government Pension Investment Fund (GPIF) to invest directly in companies and have a say in how they are run.

Currently the ¥126.6 trillion ($1.2 trillion) fund is prohibited from buying stocks directly and entrusts external asset managers to exercise the voting rights it has in the companies it owns shares in.

It should also be permitted to invest in unlisted ventures and small- and medium-sized enterprises, said Yasuhisa Shiozaki, deputy policy chief of Japan's Liberal Democratic Party (LDP) and a member of the house of representatives.

Expanding GPIF's investment in domestic companies would probably result in increased monitoring of their operations, said Shuhei Abe, chief executive of asset manager Sparx, which manages ¥743 billion in assets. That could boost corporations’ earnings power, he added.

As of this March, 55.43% of GPIF’s portfolio was in domestic bonds, 16.47% in domestic equity, 15.59% in international stocks and 11.06% in international bonds.

Prime Minister Shinzo Abe has urged the world’s biggest retirement fund to broaden its investments away from bonds and more into equities, a call that has been echoed by many commentators.

Speaking at an industry forum organised by Bloomberg earlier this week, Shiozaki said GPIF should hire more investment experts. It is rumoured to have only seven out of a 100-strong workforce, he noted.

He drew a parallel to the “few hundred professionals that work in the asset management division” of GIC, Singapore’s sovereign wealth fund.

This is despite GIC having significantly less assets under management than GPIF. The Sovereign Wealth Fund Institute puts the Singapore institution’s AUM at $320 billion, although GIC says only they stand at "well over $100 billion".

“GPIF is not working as an asset manager, but as an asset owner,” said Shiozaki. "Building GPIF into a flexible organisation is an important political mandate for us."

In April, the fund announced a series of structural changes, as reported. They included an overhaul of its equity portfolio, and a pledge to introduce a performance-based fee structure for active managers.

The GPIF had come in for criticism for being unaccountable because its president, Takahiro Mitani, and the country’s health ministry, have the final say on investments.

Mitani is advised by an 11-member investment committee comprising experts in finance, economics and other relevant fields appointed by the minister of health, labour and welfare.

The LDP is working on legislation that would establish a board of six or seven directors to oversee GPIF.

Shiozaki said the priority is to install a full-time board, then to look at changing the fund’s asset allocations.