Ban on GPIF direct stock investing to continue

The world’s largest pension fund will continue to rely on third-party asset management firms to manage its direct stock investments.

Japan’s ruling party the Liberal Democratic Party (LDP) has decided not to lift the current ban on Japan’s Government Pension Fund (GPIF) from investing directly in stocks amid proposals from GPIF that the practice should be reviewed.

This means that most of GPIF’s investments will continue to be outsourced and only some passive domestic bond investments will be managed in-house. It will not be able to directly invest in equities until debates resume in three years.

Based on the decision, the country's welfare ministry, which oversees GPIF, will draft a bill on pension reforms that would leave the ban on direct stock investment by the GPIF in place and introduce a board of independent directors to reduce the power of its president, according to Jiji Press.

The Japan Business Federation and the Japanese Trade Union Confederation opposed lifting the ban, arguing that such a move could lead to direct control of private companies by the state-affiliated institution, reports Jiji.

Four asset managers are currently managing the pension’s active domestic and foreign equities. GPIF selected Schroder Investment Management (Japan), Daiwa SB Investments and Nomura Asset Management for domestic active stock mandates, and UBS Global Asset Management (Japan) for foreign active holdings, according to a statement on its website.

GPIF, which has JPY 140 trillion ($1.18 trillion; €1.14 trillion) in assets, manages the reserve funds of private sector employees and the national pension programme and is one of the world’s largest institutional investors.

After a strategy and governance revamp in 2014 and in search for better returns, GPIF has announced diversifying into alternative assets such as private equity, real estate and infrastructure; adopting the JPX-Nikkei Index 400 as a benchmark for domestic stocks; and hiring in-house investment managers for alternatives, as reported by Private Equity International.

The pension fund manager had previously stated its goal of investing five percent of its portfolio in alternatives.

In 2014, GPIF hired Hiromichi Mizuno, a former partner of London-based private equity firm Coller Capital as its first head of investment.