Japanese corporations will be under increased scrutiny by institutional investors to improve corporate governance if an informal agreement made Wednesday by the top investment officials of the $186.8 billion California State Teachers' Retirement System and Japan's $1.3 trillion Government Pension Investment Fund becomes a reality.
At a panel Wednesday at the Milken Institute Global Conference in Beverly Hills, Calif., Christopher J. Ailman, CalSTRS' chief investment officer, asked Hiromichi Mizuno, GPIF's CIO, if he would join together to form a coalition between the two plans to address governance concerns.
Mr. Mizuno agreed, and Mr. Ailman said he would also bring Theodore Eliopoulos, CIO of the $293.6 billion California Public Employees' Retirement System, Sacramento, into the fold to join the coalition.
Mr. Ailman said Japanese companies had been slower than their U.S. counterparts in improving board governance, and in their response to environmental and social concerns.
“It's very exciting to have the largest asset owner in the world interested in corporate governance,” Mr. Ailman said.
West Sacramento-based CalSTRS has been in the forefront of efforts to improve the governance practices of U.S. corporations, arguing that better-managed corporations means more profits for CalSTRS' equity portfolios.
Mr. Mizuno said an increased effort is necessary in Japan. He said the pension fund's own passive equity managers need to challenge corporations over their governance practices but have refused, saying they are not paid enough by the Tokyo-based Japanese pension fund.
Mr. Mizuno said he has told the managers he will pay them more to start engaging companies on corporate governance. “As passive managers, we expect them to do more,” Mr. Mizuno said. He said he would like the asset managers to “aggressively passively manage.”
Mr. Ailman was asked at the panel, whose theme was the dangers of short-termism, why CalSTRS maintained its own hedge fund portfolio of activist managers that take stakes and target underperforming companies.
Mr. Ailman defended the portfolio, saying CalSTRS doesn't want those companies to improve results in 90 days, but over a multiyear time span.
He disclosed at the panel that he has verbal fights with BlackRock Chairman and CEO Laurence D. Fink over the issue, noting that Mr. Fink is opposed to taking stakes in underperforming companies.
Mr. Ailman said ultimately he does not care about how a company performs in a 90-day quarter, noting as an example, it was not fruitful to make judgments on how many watches or iPhones Apple sells in a quarter.