Japan's Government Pension Investment Fund doubled its allocations to domestic smart beta equity strategies last year, a vote of confidence that could point to mandates for foreign factor-based strategies when the ¥135 trillion ($1.3 trillion) behemoth reshuffles its overseas equities manager lineup later this year.
The GPIF's annual report for the fiscal year ended March 31, released July 29, showed the Tokyo-based pension giant's allocations to active strategies rising roughly 1 percentage point, or $13 billion, for each of the four major asset classes in its policy mix: domestic and foreign stocks and bonds.
For domestic stocks, however - where GPIF added its first smart beta strategies in March 2014 - the past year's entire ¥1.4 trillion rise in active allocations went to the fund's smart beta managers: New York-based Goldman Sachs Asset Management Co. and Tokyo-based Nomura Asset Management Co.
GSAM's strategy, benchmarked against the S&P Global Intrinsic Value index, and Nomura's Research Affiliates Fundamental index strategy are classified as active by the GPIF in the sense of moving away from traditional market-cap-weighted benchmarks, rather than being managed with the goal of adding alpha above their respective smart beta benchmarks.
Michael Sebastian, Singapore-based global chief investment officer of Aon Hewitt's delegated investments business, said factor-based strategies could prove a logical port of call for the world's biggest pools of capital.
With “investors of a certain size” constrained in their ability to add value through traditional skill- and security selection-based active management, “exploiting persistent market inefficiencies ... through broad rule-based strategies would be one of a limited number of ways” for those whales to potentially add value, he said.
For GPIF's latest fiscal year, GSAM's assets more than doubled to ¥1.6 trillion and Nomura's RAFI assets jumped 56% to ¥1.3 trillion, boosting the smart beta portion of GPIF's ¥5.653 trillion in total active domestic stock allocations to 50%, from 33.5% the year before.