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World's Biggest Pension Fund Gets More Freedom on Manager Hiring

The world’s largest pension fund is about to get the freedom to add new asset managers when it sees fit, rather than waiting until the end of the incumbents’ three-year terms.

QuickTake Japan’s Pension War

The $1.2 trillion Government Pension Investment Fund will adopt the new system from the fiscal year starting April, it said in a report published on its website Wednesday. Investment firms will be able to apply to oversee the fund’s money at any time, the report said, as GPIF seeks to attract top managers. The fund currently waits too long to review external hires, the minutes of the fund’s November investment committee meeting also released today said, citing an unnamed official.

It’s the latest step in changes at GPIF after a panel handpicked by Prime Minister Shinzo Abe recommended a complete overhaul of how the fund manages Japan’s retirement money as the nation seeks to exit deflation. Other steps include paring its bond allocation to make way for equities and making a foray into alternative investments. GPIF’s overseers also want to improve the fund’s governance by creating a board of directors, and are debating whether laws should be changed to allow it to invest in stocks directly.

“The current system means that even if we encounter good asset managers, we’re asking them to apply for a position in three years’ time,” according to the minutes, which cited the unnamed official. The new system would mean “they can apply whenever.”

The fund unveiled sweeping changes to its foreign bond investments in October, hiring more than a dozen new managers and creating mandates for junk debt and emerging market securities. In 2014, GPIF hired new domestic stock managers, including “friendly activist” Taiyo Pacific Partners and smart-beta investment firm Dimensional Fund Advisors. 

GPIF will start using the new system “at some point” during the year starting April, according to spokesman Shinichirou Mori. It’s also considering whether to test it with just one asset class at first, he said.

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