Inside GPIF’s private equity portfolio

China, Africa and India accounted for more than 80% of the Japanese pension fund's private equity investments last year.

Japan’s Government Pension Investment Fund, the world’s largest pension fund with about $1.4 trillion in assets made 8.2 billion yen ($74 million; €63 million) of private equity investments for the fiscal year ended 31 March 2018, according to its latest annual report.

Co-investment agreements with the International Finance Corporation and the Development Bank of Japan allowed the pension giant to tap emerging markets such as Indonesia, India, Africa and Chile, Naori Honda, a spokeswoman for GPIF told Private Equity International. China accounted for the largest share at 44.2 percent of its private equity investments, followed by Africa with 19.8 percent and India’s 19.6 percent.

In terms of preferred investment sectors, consumer goods made up close to a third of its private equity portfolio, followed by healthcare (18.7 percent) and IT (16.8 percent).

Alternative assets accounted for 0.13 percent of the pension’s investment as of end-March 2018, well under its investment target of 5 percent. In an email response to PEI in April last year, GPIF president Norihiro Takahashi wrote that the pension’s goal is “to develop its private equity, real estate and infrastructure strategies in the same way and at the same speed”.

GPIF is searching for global fund of funds managers for private equity and real estate and expects to award mandates towards the end of the year. The pension is recruiting private equity funds of funds targeting North America, Europe and Japan that target varied strategies including buyouts, growth capital, private debt and venture. Towers Watson Investment Services and Russell Investments Japan are working alongside GPIF on the due diligence process and evaluation.

The investor awarded infrastructure mandates to Pantheon, DBJ Asset Management and StepStone Infrastructure & Real Assets in the first quarter of 2018.

Last month, GPIF was also given the green light by the Ministry of Health, Labor and Welfare to invest directly into private equity, real estate and infrastructure funds via a limited partnership structure. Honda noted that the investor will “look for investment opportunities through limited partnerships only after it is ready in terms of its organisational capacity such as human resources”.

GPIF posted investment returns of 6.9 percent or 10.1 trillion yen for FY 2017, higher than the previous year’s 5.86 percent, buoyed by the performance of its domestic and overseas stocks, “supported by a robust economic environment and solid corporate earnings,” Takahashi said in a statement.

GPIF does not disclose overall returns of its alternatives investments. Its private equity investments generated a -5.85 percent internal rate of return for FY 2017, significantly better than its -14.31 percent return for FY 2016. When asked about the performance of the pension’s private equity portfolio, Honda explained that “the investment return for the initial years is usually negative, since the burden of initial costs such as fund formation fund management is heavy”. She added that GPIF expects its returns to improve.

Its infrastructure investments delivered a 5.25 percent internal rate of return since February 2014. Both performance figures are calculated in US dollars.

“As GPIF organises and staffs up its alternative investment division, prepares its risk management plans and installs its information systems, it expects a stable pace of investment”, Takahashi said in the annual results briefing on Friday. “We will pay close attention to the market size along with the consulting firms, so that we will not greatly affect the market.”