Japan's Government Pension Investment Fund will rely on external money managers, active as well as passive, as it pursues the unprecedented shift into higher risk assets the $1.1 trillion pension fund officially launched late last year.
Speaking Monday at Pensions & Investments' Global Future of Retirement conference in New York, Hiromichi Mizuno, executive managing director and chief investment officer of the Tokyo-based pension fund, said he doesn't think GPIF can build internal capabilities capable of besting the performance of top money management firms.
For the time being, Mr. Mizuno said, “my realistic goal is … to build our team into a world-class manager of money managers, or in terms of alternatives, fund-of-funds manager.”
GPIF, which is legally constrained from making direct investments in equities, will continue to rely on external managers, active as well as passive, Mr. Mizuno said. While noting it can be difficult to prove active managers produce enough alpha to justify their fees and the internal resources GPIF expends selecting and monitoring them, active management is a key to ensuring the efficiency of capital markets that GPIF takes advantage of when it invests passively, he said.
Mr. Mizuno said if any market — including Japan's, where GPIF is a significant player — were to become dominated by passive players that could ruin the efficiency of the market. “We'll continue to use active managers,” because at the end of the day, GPIF benefits more from “better beta than better alpha,” he said.
Asked about alternative investments, Mr. Mizuno said GPIF is in no rush to throw money at private market investments, even as it continues to lay the groundwork to pursue such investments. The 5% figure for alternatives cited in the asset allocation the GPIF adopted in October 2014, is an “opportunity for us, not an obligation,” he said.
Even so, the GPIF is hiring private markets experts for its internal staff, and will pursue compelling opportunities as they present themselves, Mr. Mizuno said. With room to invest up to $70 billion to $80 billion in alternatives, “as soon as we build a team, and as soon as we see compelling opportunities, we hope we'll be a significant player” in private markets, he said.
