• Committee agrees on relaxing derivatives investment rules
  • Government-run pension fund undergoing overhaul under Abe

A panel advising on Japan’s $1.2 trillion Government Pension Investment Fund deferred a decision on whether to allow in-house investment on stocks.

Also, rules banning GPIF from investing in derivatives should be eased, the committee told reporters in Tokyo on Monday. The panel will present the two proposals to Health Minister Yasuhisa Shiozaki.

The health ministry advisory panel began debating in-house investments in earnest this year, the latest step in an unprecedented overhaul under Prime Minister Shinzo Abe that’s also seen GPIF double its allocation to equities, start buying alternative assets and seek to strengthen its governance structure. The 19-member group was divided over the proposal, with opponents saying that the fund will have too much influence over Japan Inc. if it directly owns voting rights.

Susumu Makihara, from Japan’s biggest business lobby Keidanren, said in previous panel meetings that GPIF will become a vehicle for the government to influence private company management. Keio University economics professor Kohei Komamura also opposed the move, saying the fund should improve its governance before considering such investments. Proponents for change argue that GPIF would reduce the amount it spends on hiring external managers and be better-equipped to obtain real-time market information and investment knowledge.

Abe has no plans to influence company policy via GPIF, the premier said in parliament last week.

GPIF has 48 mandates with managers who oversee its domestic and foreign stock investments, including BlackRock Inc. for Japanese passive stock holdings and UBS Global Asset Management for foreign active investments, according to data from the fund as of the end of March

The law governing GPIF currently prohibits the fund from investing in stocks directly as well as trading in derivatives. The health ministry may use the panel’s recommendations to create a bill proposing any change in the current diet session. The bill will also include a plan to install a board of mostly independent directors to oversee its investments.

Hiromichi Mizuno, chief investment officer for GPIF, has said that without in-house investments the fund struggles to receive adequate information about the markets and isn’t able to lure investment professionals as it seeks to expand hiring.

“I’m frequently meeting the CIOs of global pension funds, and when I tell them that most of our investments are outsourced and that only some passive domestic bond investments are in-house, they look amazed, and I’m sick of seeing it,” Mizuno said at a panel meeting last month. “From a global standpoint, GPIF’s investment is behind the curve.”

GPIF should also be allowed to invest in derivatives such as index and currency futures for hedging purposes, Mizuno has said.

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