GPIF feast or famine fee structure exposed as pension fund seeks more managers

Up to 2 trillion yen, or nearly $15 billion, could be up for grabs as the GPIF – following the widespread underperformance of its active foreign equity managers last year – seeks a a formula capable of generating steadier gains from what remains a 3% slice of its portfolio, but which can still have an outsized influence on returns relative to the broader fund’s benchmark.

In a year-long review that hinted at a surprisingly tactical approach to steer the world’s largest pension fund through recent storms, Mr Ueda said that in response to a rapid increase in volatility over the second half of the year, it had cut about 2 trillion yen. from GPIF’s active foreign equity allocations. The seven incumbent managers underperformed, offsetting the outperformance of the fund’s bond and domestic equity managers and leaving the broader portfolio behind its benchmarks by 6 basis points for the year.

This risk reduction scheme will provide GPIF with the opportunity to achieve greater diversification benefits and reduce concentration risk by adding more equity managers. “We plan to select funds that are active in the North American market, which currently presents the most options,” he noted.

A Tokyo-based analyst, who declined to be named, said Mr Ueda’s latest comments indicate a short-term focus and considerable sensitivity to periods of “minus alpha”.

Mr Ueda, through a spokeswoman, declined to comment beyond his two-page review of the year in the GPIF’s latest annual report.

Prior to last year’s 2 trillion yen sector shake-up, three of GPIF’s seven incumbent international equity managers had overseen more than 1.2 trillion yen each of the fund’s allocations, or about 65% of a active portfolio of 5.7 trillion yen. Passive foreign equity managers managed an additional 42.8 trillion yen.

The March 31 close of the last fiscal year revealed that the pie was split more evenly among GPIF’s five managers with the MSCI World ex-Japan benchmarks:

  • UBS Asset Management (UK) Ltd. to 788 billion yen, down 37% from 1,240 billion yen a year earlier.
  • Baillie Gifford Overseas Ltd. to 706 billion yen, down 43% from 1.23 trillion yen.
  • Intech Investment Management at 932 billion yen, down 23% from 1.22 trillion yen.
  • MFS Investment Management at 778 billion yen, down 7.9% from 844 billion yen.
  • Walter Scott & Partners Ltd. to 628 billion yen, down 11% from 707 billion yen.

The two GPIF managers with benchmarks in emerging markets – Allspring Global Investments and Lazard Asset Management – ​​each saw cuts of around 10%.

The GPIF ended the year with 4.7 trillion yen in active allocations to global equities, compared to 5.7 trillion yen the previous year, the nearly 23% gain of the MSCI World index ex- Japan for the 12 months through March 31 having apparently made up some of that ¥2. trillion reduction.

A GPIF spokeswoman confirmed that, as the fund maintains a registration system that allows fund managers to provide GPIF with up-to-date information on their activities, no RFPs will be required to move these plans forward. Meanwhile, it is unclear whether the full 2 ​​trillion yen will be redirected to newly hired executives, she said.

Ida M. Morgan