The LDP’s changes to the legislation governing the 128.6 trillion yen ($1.27 trillion) Government Pension Investment Fund may also include allowing direct investments in a broader range of assets, as well as the creation of risk and governance committees, said Kozo Yamamoto, who’s in charge of preparing the bill. Passing the law in the current parliamentary session is unlikely as Yamamoto still needs to get other members of the LDP and coalition partner New Komeito on board, he said.
“The current system where the president has total responsibility leads to a conflict of interest,” Yamamoto said. A board of directors and other committees are needed “to ensure transparency and responsibility.”
The government is pressing forward with plans to revamp GPIF as inflation accelerates, risking eroding the value of the domestic bonds that make up more than half the fund’s portfolio. The introduction of a board was recommended last year by a panel handpicked by Prime Minister Shinzo Abe, which also advised the fund to reduce holdings of local debt. Under the current system, GPIF President Takahiro Mitani and the health ministry have the final say on investment decisions and the fund is barred from direct purchases of stocks.
The board of directors may have full-time members drawn from business, labor unions, local government and academia, Yamamoto said. While a chairman will be appointed, the group will take joint responsibility for decisions, he said.
The three committees will report to the board of directors, while the chief executive officer and other executives will be under the committees, according to Yamamoto. The executives should be experts in investing from the private sector, he said.
“The investment committee should focus on getting the best returns possible, and then the risk committee should check that they haven’t gone too far,” said Yamamoto. “At least three committees are absolutely necessary.”
Hiring directors would give GPIF more expertise to draw on and help it better manage its assets, LDP lawmaker Masahiko Shibayama said in an interview last week.
GPIF should also be allowed to invest directly in assets and talk to companies they buy, with the current law restricting this changed at the same time as the governance overhaul, Yamamoto said.
Yamamoto said today the bill will be submitted in the next Diet session or later. An extraordinary session of parliament may be convened starting this fall. The party should pass the bill in the current parliamentary session running through June, Yasuhisa Shiozaki, the LDP’s deputy policy chief, told Bloomberg News in January.
“It’s difficult to pass the bill this session,” Yamamoto said. “The behind-the-scenes work is hard. We need more time,” he said. People within the LDP need convincing and “also the New Komeito is saying strange things about domestic bonds. We need to persuade them one-by-one,” he said.
Once GPIF’s governance structure is set, the Minister of Finance, Financial Services Minister and Chief Cabinet Secretary should have input into setting the fund’s return targets as well as the health minister, Yamamoto said.
“The health minister probably doesn’t understand finance, and if something were to go wrong, they’ll need to ask for help from the public finances,” Yamamoto said. “The minister of health should be made to reach an agreement,” about returns with the other ministers, he said.
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