April 22 (Bloomberg) -- Japan’s government pension fund overhauled its investment committee, adding three members of a state panel that urged it to cut bonds, as the balance of power shifts at the world’s biggest manager of retirement savings.
Yasuhiro Yonezawa, who sat on the group handpicked by Prime Minister Shinzo Abe that recommended a strategy and governance revamp at Japan’s 128.6 trillion yen ($1.25 trillion) Government Pension Investment Fund, will join the committee, the health ministry said. Yonezawa, 63, is expected to be named head, according to media reports. Sadayuki Horie and Isao Sugaya were also appointed, with only two of 10 previous members remaining and the committee’s size reduced to eight.
“Several stages are needed to change GPIF’s governance structure, and the first is to change its investment committee members,” Takatoshi Ito, who headed the advisory group, said in an interview on April 17. “Our panel advised that the investment committee should hold more power, as the fund currently has no board of directors.”
The appointments suggest the ministry is heeding the directives of Ito’s group amid mounting pressure on GPIF to cut reliance on domestic bonds as pension payouts swell and Abe and the Bank of Japan seeks to spur price gains. GPIF has already implemented several of the panel’s recommendations, including readying to diversify into areas such as infrastructure, adopting benchmarks like the JPX-Nikkei Index 400 for domestic stocks and preparing to hire in-house investment experts at market rates.
The health ministry appoints the members of the committee, which monitors the implementation of GPIF’s policies and advises the president.
Yonezawa, a professor at Waseda University’s Graduate School of Finance, is also on a 21-member advisory group helping the ministry of health conduct a five-yearly review of public pensions due this year, which may lead to a change in asset allocations. He sits on a 10-member ministry committee that set GPIF’s new return target of 1.7 percent plus the rate of wage growth last month and said the fund no longer needs a domestic-bond focus.
“I’m convinced that he will work in line with our panel’s report to enhance GPIF’s investment and strengthen its risk management and governance,” said Masaaki Kanno, chief Japan economist at JPMorgan Chase & Co., who was also a member of Ito’s group.
Yonezawa is expected be named chairman of the investment committee, according to reports by the Nikkei newspaper and Kyodo News on April 19.
Horie is a senior researcher at Nomura Research Institute Ltd. and previously worked for Nomura Asset Management Co. Sugaya, 61, is managing director at the Japan Trade Union Confederation, known as Rengo.
Two women have been appointed: Junko Shimizu, a professor of international finance at Gakushuin University in Tokyo, and Yoko Takeda, chief economist at Mitsubishi Research Institute Inc. Also joining the group is Setsuya Sato, a professor in the English communications department at Toyo University who also served as a financial adviser to the World Bank and public policy director at UBS AG.
The remaining two are Hiromichi Oono, a board member at Ajinomoto Co. and Kimikazu Noumi, president and chief executive officer at Innovation Network Corporation of Japan.
Ito’s panel recommended in November that legislation be enacted to give GPIF independence from the health ministry, which has ultimate responsibility for the fund. As a transitional measure until the law is passed, multiple members of the investment committee should be hired full-time, according to the panel. The health ministry’s statement made no mention of full-time officials.
A system where GPIF’s head has sole decision-making power and responsibility “may fail to function adequately,” Ito’s panel said in its report in November. Takahiro Mitani, the fund’s president, currently has sole authority.
GPIF and the health ministry should “quickly and steadily” enact necessary policies following the recommendations by Ito’s panel, according to a cabinet decision on Dec. 24.
“The cabinet is the driver of change” for GPIF, Ito told Bloomberg News. “The cabinet is going to keep pushing.”
Other changes have also been made based on the recommendations of Ito’s panel. The health ministry is engaging consultants to review GPIF’s hiring, Kotaro Mori, an official at the ministry department that oversees the fund, said on March 12. A plan to remove a restriction on personnel expenses for GPIF was approved last month, the ministry said.
GPIF said on Feb. 28 that it will put as much as $2.7 billion in infrastructure investments over the next five years, in partnership with Development Bank of Japan Inc. and Ontario Municipal Employees Retirement System.
On April 4, the fund said it will reduce passive investments based on the Topix index and add the JPX-Nikkei 400 among new benchmarks. Traditional active investments will be trimmed to make room for smart-beta strategies.
Japanese bonds accounted for 55 percent of GPIF’s assets as of the end of December, according to its quarterly report. The fund had 17 percent of its holdings in domestic equities, 15 percent in foreign stocks and 11 percent in overseas debt.
The Topix index of stocks sank 0.8 percent to 1,162.50 at the close of trading in Tokyo today.
GPIF is legally required to benefit only pension recipients through its investments in shares and other assets, and their market impact should be taken into consideration, Japan Health Minister Norihisa Tamura said today. Tamura was responding to comments by Finance Minister Taro Aso last week that plans for GPIF will be included in the nation’s revised growth strategies to be announced in June.
The fund led by Mitani is likely to revamp its portfolio allocations by June after the ministry review is finalized, and has already made significant strategy changes, Ito said in the April 17 interview.
“If you look at the changes GPIF made this year so far, they show that Mitani is moving forward,” Ito said.
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