Japan's Government Pension Investment Fund on Thursday tripled its manager lineup for active international bonds and announced its first specific allocations for high-yield bonds and emerging markets debt.
The ¥141 trillion ($1.17 trillion) Tokyo-based pension fund, said in a news release that a new structure for its active international bond allocations — with eight categories in place of the prior singular focus on allocations benchmarked against the Citi World Broad Investment-Grade Bond index — will enhance diversification and flexibility.
In a change that suggested a greater emphasis on alpha, the news release said compensation for all 21 active bond managers — six of which were already managing GPIF money as of the March 31 close of the pension fund's latest fiscal year — would include performance-based fees. As of March 31, the pension fund's lineup of active bond managers had been only seven firms.
The pension fund already had performance-fee arrangements with some of its active international equity managers, but this is the first instance of such arrangements with active international bond managers, a GPIF spokesman said in a telephone interview.
The announcement provided no details regarding specific allocation sizes. The spokesman said the pension fund releases details regarding the amounts each manager is overseeing once a year, with fiscal year-end results.
As of March 31, the GPIF reported ¥5.481 trillion allocated to seven active bond managers, or roughly 4% of the overall portfolio.
Among the GPIF's eight categories for active international bonds, strategies benchmarked against the Barclays Capital Global Aggregate Bond ex-Japan Bond index were the largest, with 12 managers — Goldman Sachs Asset Management; Schroder Investment Management (Japan); Sompo Japan Nipponkoa Asset Management Co., with subadviser Colchester Global Investors; Nomura Asset Management Co., with subadviser Franklin Advisers; BNY Mellon Asset Management Japan, with subadviser Standish Mellon Asset Management; PIMCO Japan, with subadviser Pacific Investment Management Co.; BlackRock Japan; Prudential Investment Management Japan Co.; Manulife Asset Management (Japan); Mizuho Asset Management Co., with subadviser Loomis Sayles & Co.; Morgan Stanley Investment Management (Japan) Co.; and Legg Mason Asset Management (Japan) Co., with subadviser Brandywine Global Investment Management.
GSAM, BlackRock, Mizuho, PIMCO, Morgan Stanley were previously international bond managers for the GPIF.
For U.S. aggregate allocations, GPIF hired DIAM, with subadviser Janus Capital Management; FIL Investments (Japan), with subadviser Pyramis Global Advisors.
BNY Mellon Asset Management Japan was also hired as the only manager of a European bond allocation. It will be subadvised by Insight Investment Management.
For U.S. high-yield bond allocations, GPIF hired Nomura Asset Management for two allocations. MacKay Shields will serve as subadviser on one of the portfolios.
In other bond categories, UBS Global Asset Management (Japan) was hired for European high yield; Ashmore Japan Co., for emerging markets local currency; AllianceBernstein Japan, emerging markets hard currency; and BNP Paribas Investment Partners Japan, with subadviser Fischer Francis Trees & Watts, for inflation-linked bonds.
Of the GPIF's seven active managers as of March 31, only one — Tokio Marine Asset Management, with a ¥541 billion global aggregate bond allocation, subadvised by Tokio Marine Rogge Asset Management — didn't remain in the pension fund's latest lineup.
AllianceBernstein fell off of the pension fund's list of global aggregate managers, where it oversaw ¥790.6 billion as of March 31, but the firm gained an emerging markets hard currency mandate.
The GPIF on Thursday also announced less dramatic changes to its manager lineup for passively managed international bonds, which remained at six firms, overseeing the ¥12.7 trillion in allocations, or 9.24% of the portfolio, as of March 31.
However, the lineup included two new firms: Nomura Asset Management and Resona Bank.
Falling off the list were Northern Trust Global Investments Japan, which oversaw ¥2.13 trillion as of March 31, and Mitsubishi UFJ Trust and Banking Corp., which oversaw ¥2.06 trillion.
As of June 30, the GPIF's allocation to international bonds came to just more than 13% — roughly two percentage points below the target of 15% it adopted a year ago following an asset allocation review.
Hiromichi Mizuno, the GPIF's executive managing director and chief investment officer, couldn't immediately be reached for further comment.