Prime Minister Shinzo Abe is
moving to shake up oversight of the world's largest pension fund, expanding the
board and giving it new power to steer a shift out of Japanese government bonds
and into higher-yielding assets, according to two people with direct knowledge
of the matter.
Officials are considering a
proposal to add two or three dedicated professional advisors to the committee
that oversees investment at the $1.26 trillion Government Pension Investment
Fund (GPIF). They would play a key role in reforming a fund that's bigger than
the economic output of Mexico with the power to influence markets as Abe
presses policies to spur growth.
The beefed-up GPIF committee
could be given new, broader powers that would make it the final arbiter for how
the Japanese pension fund invests its money, according to the people, who asked
not to be named because the policy measures remain under discussion.
The existing investment committee
comprises academics and economists, with a representative from Japan's trade
union federation and one from the main business lobby. Its current role is
restricted to advising the fund's president.
The proposed reforms would help
shift GPIF towards riskier investments like stocks and away from low-yielding
Japanese government bonds. Supporters of the reform say targeting higher
returns would benefit future pension recipients in Japan's ageing population
and drive economic growth.
A spokesman for GPIF said the
fund would not comment on matters under consideration as a matter of policy.
MATCHING PEERS
Earlier this month, Abe told a
dinner hosted by the City of London that reform of GPIF was under way and that
the fund was "making improvements".
Last June, GPIF lowered its
allocation target for domestic bonds and raised its target for stocks as part
of a bid to achieve higher returns. In March, the fund was given a target of
hitting a return of 1.7 percentage points over wage increases.
Taken together, GPIF has already
seen more changes in the past year under Abe than it has since its
establishment as a public fund in 2001.
As part of those changes, a
person with knowledge of the process said GPIF's investment committee has
formed a four-member working group headed by Sadayuki Horie, a senior
researcher at Nomura Research Institute, that has been tasked with a review of
its allocation targets over the next two to three months. Horie declined to
comment.
As it reforms GPIF, Abe's
government is betting that it can give up a back-pocket means of financing
Japan's government debt, now over 200 percent of GDP and the largest in the
industrialized world.
GPIF currently holds 60 percent
of its assets in Japanese government bonds, but the Bank of Japan now buys up
most new debt issued by Japan's government as part of an aggressive monetary
easing.
"Debate is already
proceeding and we've indicated a direction for GPIF in moving out of JGBs and
into risk assets like stocks, REITs and infrastructure funds," Japan Vice
Minister Yasutoshi Nishimura told Reuters.
The target for reformers has been
to make GPIF more like overseas public pensions, like those run by Norway,
Canada and the state of California. Those funds all hold more than half of
their assets in equities.
At the same time, they are
staffed by hundreds of professionals to vet fund managers and monitor
performance. The Canada Pension Plan Investment board employs over 900 staff.
Japan's GPIF, by contrast, has only about 80 staff.
Fidelity Investments, the private
U.S. mutual fund giant, has about $1.9 trillion under management as of April
and employs over 40,000 people in North America.
'VERY SIMPLE'
Masahiko Shibayama, a lawmaker in
Abe's Liberal Democratic Party who heads the group preparing proposed financial
reforms, told Reuters in a recent interview that GPIF's investment committee
needed more authority.
"We think it's necessary to
reform governance of GPIF," Shibayama said. "I think there needs to
be an official process so that the knowledge of specialists can be reflected in
decision-making. It's very simple."
Shibayama declined to comment on
the specific proposals his panel is preparing, part of a June announcement of
Abe's "third arrow" of reforms, referring to the third plank of
policies designed to revive the world's third-biggest economy. Among measures
expected to be announced are a recommendation for a cut in the corporate income
tax level.
Last month, Japan's health
ministry, which has a supervisory role for the fund, appointed eight members to
the GPIF investment committee. Three of the eight also previously served on a
separate Abe-appointed economic advisory panel that recommended increasing the
role of financial professionals at GPIF and reducing its reliance on Japanese
government bonds.
The proposed reforms add a new
note of uncertainty about the tenure of the fund's president, Takahiro Mitani,
a former Bank of Japan board member with one year remaining of a five-year
term. Mitani declined a request for an interview.
Although Mitani is credited with
helping to steer GPIF through its still-developing reform, his tenure is also
seen as symptomatic of the passive and bureaucratic approach to fund management
that the Abe government is set to change.
One obstacle to hiring full-time
fund managers, for instance, has been GPIF's salary structure, which is in line
with government ministries. Mitani, who made the equivalent of $192,000 for the
year ended March 2012, has been the highest paid fund employee.
GPIF is in the process of
selecting a consultant to review its salary and bonus scheme for new and
existing staff, a spokesman said. (Reporting by Chikafumi Hodo and Takaya
Yamaguchi; Editing by Kevin Krolicki, Edmund Klamann, Kenneth Maxwell and Miral
Fahmy).
(Reuters)
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