Toranomon Hills

GPIF’s delayed consideration of in-house investment management.

 

Monday, 14th March 2016

The Ministry of Health, Labour and Welfare (MHLW) as a supervisor of the world’s largest public pension fund, the Government Pension Investment Fund (GPIF, 1.23 trillion USD) is debating on GPIF’s direct stocks investments by in-house management, and structures of alternative investment.

MHLW doubts whether GPIF seeking for higher returns by introducing the investment models of in-house management will meet their expectations.

In regard to GPIF, most of their investments are outsourced that bringing asset management in-house was to generate higher returns by minimising operational commissions, reducing the costs of third party, and improving the skills of fund manager selection and monitoring. However, GPIF’s decision to handle some part of their stocks through in-house management was postponed by an advisory committee of MHLW on Feb. 2016,  with strong oppositions.

The Subcommittee of the Social Security Council stated their concern that “ GPIF as public entity, its direct controlling of stocks may lead to government’s intervention for the private sectors.”

In fact, this can be a hint for GPIF’s investment method and structure for real estate and other real assets.

Yukihiko Ito, managing director of Asterisk Realty, commented, “It may be more difficult for direct investment to real estate. Traditionally, after a crash of Japanese bubble in 1990’s, real estate market was imaged as low transparent , very volatile and unfair in Japan. These prejudice are still remaining. Considering the public’s opinion, it may be a challenge for Japanese public pensions to invest to individual assets by its own direct control yet.”

 

Following the Pension investment subcommittee of the Social Security Council (Ministry of Health, Labour and Welfare) on Feb. 2016 :

Plot summaries of GPIF investing in alternative assets

  • At the moment, investments that have been through acquisition of securities (i.e. mutual fund structure) are only allowed.
  • Limited investment structure have been barrier for alternative investment by co-investment with other overseas pension funds using variety of investment structures.
  • There are three potential options for co-investment structure:
  1.   As LP
  2.   As GP
  3.   Direct investment
  • GPIF wants to avoid the risk of having public complaints, especially the possible loss exposure including unexpected accidents.
  • In case of direct investment to specific properties of real estate assets with direct control, it might be difficult for GPIF to get public consensus.

 

Taking these views by the Pension investment subcommittee of the Social Security Council into consideration, GPIF has a view of co-investment with other overseas public pension funds. Yet, investment for alternative can be done through passive investment, such as LPS or LPE, which doesn’t require GPIF to make investment decision for each individual assets at the limited liabilities.

Consideration for the big shift of GPIF’s investment behaviour will continues to catch global attention.

Clearly the above analysis gives a hint of investment model & structure for alternative and real estate investment to other Japanese public pensions.

Other Japanese public pensions, such as Chikyoren (Pension Fund Association for Local Government Officials, 185 billion USD) and KKR (Federation of National Public Service Personnel Mutual Aid Service, 68 billion USD), issued an RFP last year and made KKR public fund Japan’s third biggest pension fund to go into alternatives.

Furthermore, Chikyoren – one of Japan’s biggest government pension funds –  has just announced the first manager for their real estate investment this month. It seems that there will be greater attention from alternative investment industries to observe the actions of those big Japanese public pension fund.

 

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For further details about this newsletter and our services, please contact: Yukihiko Ito (yuki@asteriskrealty.jp) / Yokaze (yokaze@asteriskrealty.jp)

 

About Asterisk Realty & Placement Agency

Asterisk is a private fund placement agency for global alternative in Japan. Through our unique and extensive network of Japanese investors, we support global fund managers in accessing Japanese and Asian institutional investors (pensions, financial institutions, real estate developers, other business companies, etc.).

We provide access and strategies for overseas fund managers to bridge the gap between them and Japanese investors.

 

Asterisk Inc.,

3-29 Kioicho Gluckheim Suite 2003 , Chiyoda-ku , Tokyo , Japan

Telephone: 03-3263-9909

Email : info@japanplacementagent.com

Website : https://japanplacementagent.com/en/

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