GPIF Picks Abe Panel Members to Head Investment Committee

The world’s largest pension fund chose two members who were on a state panel that urged it to cut bonds to head its investment committee.

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 ($1.26 trillion) Government Pension Investment Fund, was appointed chairman, according to a statement on GPIF’s website. Sadayuki Horie, a senior researcher at Nomura Research Institute Ltd., was named deputy chairman.

“This means the speed at which GPIF reforms itself can be faster,” said Ayako Sera, a Tokyo-based market strategist at Sumitomo Mitsui Trust Bank Ltd., which manages the equivalent of $474 billion. “Having come from the Ito panel, their stance will fundamentally be that GPIF should buy stocks and foreign assets and sell domestic bonds.”

The move is another sign Japan’s health ministry, which oversees GPIF, is heeding the directives of the group led by Takatoshi Ito as pension payouts swell and Abe and the Bank of Japan seek 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.

Yonezawa Appointment

Yonezawa, 63, 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 last month set GPIF’s new return target of 1.7 percent plus the rate of wage growth, and said the fund no longer needs a domestic-bond focus.

The Nikkei newspaper and Kyodo News reported on April 19 that Yonezawa would be named investment-committee chairman. Horie, 56, formerly worked for Nomura Asset Management Co.

“I heard Horie-san speak yesterday at a conference,” Sera said. “He seems very particular about the need to increase GPIF’s assets. It means they’re going to be stricter about pursuing returns. He also seemed very keen to improve governance, not just at GPIF, but at companies they invest in.”

GPIF’s new return goal implies a 4.2 percent nominal target. California Public Employees’ Retirement System aims for a 7.5 percent annualized rate of return, according to its website. Ito said in an interview on April 17 that GPIF should seek the highest gains possible while considering risk, without being constrained by the target.

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.

Panel Directives

Ito’s seven-member panel published its final report in November. GPIF should review its domestic bond holdings and consider putting more money in overseas assets, while looking to diversify into alternative investments, the group said. The panel also urged that the fund overhaul its governance structure and become more independent of the health ministry.

GPIF’s statement on the appointments makes no mention of full-time officials, another recommendation of Ito’s group. Investors are watching for a further announcement on the matter.

“Our panel said the investment committee should hold more power,” Ito said. “They also need to include a couple of full-time members. It’s a point of interest from a governance perspective as to who those people would be.”

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