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Japan GPIF picks new managers for domestic stocks, adopts new index

Source: Reuters - Fri, 4 Apr 2014 13:21 GMT
Author: Reuters
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* GPIF allocates small amount of funds in JPX Nikkei 400

* Active managers largely composed of foreign firms

* Only four Japanese managers in active investment

* GPIF starts investment in J-REIT

* GPIF adopts smart beta in active investment (Adds GPIF comments, details)

By Chikafumi Hodo

TOKYO, April 4 (Reuters) - Japan's $1.26 trillion public pension fund said on Friday it has selected 14 new active managers to supervise its domestic equities investment and added more benchmarks to its strategy.

The move by the Government Pension Investment Fund (GPIF), whose asset value exceeds the size of Mexico's economy, is aimed at generating higher returns to cope with pension payouts for Japan's rapidly ageing population.

Prime Minister Shinzo Abe's government has been pressing the public fund to rely less on low-yielding Japanese government bonds. A panel he has appointed has said the GPIF and other public funds should diversify investments and use more active investment strategies to seek higher returns.

The GPIF official said the public fund's new measures, such as adopting the JPX 400 index as a benchmark and using more active investment strategies, are in line with the panel's recommendations.

The JPX 400 focuses on return on equity (ROE) and corporate governance.

Out of 14 newly appointed active managers, only four are Japanese, sharply down from eight domestic managers in the previous line-up.

"We closely studied their past performances, investment philosophy and management structure. Asset management firms which had unique qualifications topped of our list and many were foreign managers," a GPIF official said.

Consultants began the selection process about a year ago.

GPIF said it had started investing both in active and passive investments in J-REIT (Japan Real Estate Investment Trust) and adopted a "Smart Beta" strategy in its active management investment for the first time.

Smart beta is half way between active and passive investing. It aims to follow certain benchmark indices passively but allows investors to tilt weightings themselves towards volatility or momentum, seeking to outperform the main index.

The public fund will need several traditional active managers whose role will be to work with company managers to seek better value for shareholders, the official said.

The GPIF also introduced a fee structure based on performance for some active mangers. It declined to name them.

The public fund has started allocating funds to the JPX Nikkei index, but only in small amounts so far, the official said.

For details of managers, see:

http://www.gpif.go.jp/topics/2014/pdf/gpifs_selection_en.pdf

(Reporting by Chikafumi Hodo; Editing by Chang-Ran Kim/Ruth Pitchford)

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