For the world's biggest pension fund, size apparently has its privileges — at least when it comes to retaining external managers.
Data released late last month by Japan's ¥139.8 trillion ($1.3 trillion) Government Pension Investment Fund showed the Tokyo-based behemoth paying managers an average fee of 2.7 basis points on ¥99 trillion in equity and bond strategies, active and passive, for the fiscal year ended March 31, 2015.
Money management executives, who declined to be named, say increasingly, the GPIF's low-fee DNA will be tested as Hiromichi Mizuno, the private equity veteran appointed as chief investment officer in November 2014, attempts to push the once-sleepy fund in more dynamic directions.
Six months ago, when the GPIF announced a revamped lineup of global bond managers, it said that compensation for all 21 firms hired would include performance fees. The fund will look to extend performance fee arrangements to other active managers, said Shinichiro Mori, a GPIF spokesman, in an April 13 e-mail.
Meanwhile, the GPIF is laying the groundwork now to make its first move into alternative investments such as infrastructure and private equity — where higher fees can be expected.
Still, the latest data for the fiscal year ended March 2015, offered little evidence of the fund loosening its tight grip on fee payouts.
For active strategies during the year, the GPIF averaged 27 basis points on ¥3.6 trillion of international equity strategies; 12 basis points on ¥4.2 trillion in domestic equity; 13 basis points on ¥5.5 trillion of global bonds; and 5 basis points for ¥6.3 trillion of domestic bonds.
The corresponding averages for passive strategies were a quarter of a basis point on ¥26.5 trillion in international equities; less than a tenth of a basis point on ¥27.5 trillion of domestic equities; a third of a basis point on ¥12.7 trillion of global bonds and three-tenths of a basis point on ¥13.1 trillion of domestic bonds.
Those fees leave GPIF at the low end of the institutional investor spectrum, but in return money managers get “scale and good advertising,” said Declan Byrne, a Tokyo-based PricewaterhouseCoopers partner who covers the asset management sector.
A survey of 16 public pension funds, excluding GPIF, conducted by the Tokyo office of Greenwich Associates, shows managers of active strategies garnering significantly higher fees from those smaller funds.
In an e-mail, Taeko Sumiyoshi, business development strategist, said Greenwich's data, based on interviews with fund executives between April and June 2015, showed average fees of 40.2 basis points for global developed market equity managers; 32.8 basis points for domestic equity managers and 35.2 basis points for global bond managers. The e-mail didn't include a figure for managers of domestic bonds.
Still, the calculus for that trade-off can be complicated for managers with capacity-constrained strategies, industry veterans say. Unless it's a case of a new strategy that can garner “instant scale and credibility” from a mandate, “it's hard to see how it makes sense to give away scarce capacity at these rates,” said Daniel Celeghin, a Hong Kong-based partner and head of Asia-Pacific with Casey Quirk & Associates LLC, a strategic consultant to the money management industry.