Even as Mr. Mizuno acknowledged the systemic benefits active managers provide for passively managed strategies, GPIF data for its latest fiscal year ended March 31 showed the fund's lowest allocation to active managers in more than a decade.
The 9.3% actively managed share of the pension giant's domestic equity allocations was down sharply from 17% the year before — reflecting the reclassification of more than ¥3 trillion of smart-beta strategies as passive rather than active — and even further below the 22% to 25% share that prevailed between 2007 and 2012.
Mr. Mizuno said achieving the alignment of interests with managers that could pave the way for a rebound in allocations to actively managed strategies remains a work in progress. There's been considerable improvement on some fronts, such as the response of managers at home and abroad to GPIF's calls for more independent directors on their boards, but more is needed, he said.
GPIF's latest annual report showed the fund's active equity managers as a group delivered little if any alpha over the past five to 10 years. Against that backdrop, Mr. Mizuno expressed little sympathy for active managers seeking higher fees. "I know we pay very little ... but how can we pay higher when active managers as a group, net of fees, made almost zero alpha?"
"We have zero interest in reducing the absolute fee level" and would be happy to pay more if they perform, but the current investment model doesn't "allow me to increase" allocations to active managers, Mr. Mizuno said.
Mr. Mizuno said his team's discussions with managers revolve around the structure of fee arrangements rather than the level of fees. "First, we need to be comfortable that we (have) alignment of interests with the asset managers," and then GPIF can analyze whether there are managers worth awarding mandates to, he said.
He noted the fee structure changes GPIF is exploring have been considered by other high-profile public funds, such as the California Public Employees' Retirement System and California State Teachers' Retirement System, but ultimately not pursued — largely because those funds had an option to bring investments in-house.
"We don't have the in-house option, so we are totally committed to make these things happen, to create a win-win relationship," he said.
Money management executives in Tokyo, who declined to be named, said discussions with GPIF on new fee structures could result in changes in the near future. One senior executive said whether GPIF moves to cap potential performance fees could be decisive in determining how enthusiastic managers will be in embracing those new arrangements.
Mr. Mizuno said progress needs to be made on a number of fronts to allow asset managers and asset owners alike to adopt a long-term mindset. For asset owners' part, the CIO reiterated his belief that announcing quarterly updates is counterproductive, sending the wrong message both to fund stakeholders as well as to their external managers.
While GPIF's investment team works to smooth the portfolio's volatility ("we are investment professionals ... not philosophers"), Mr. Mizuno said he pays "zero attention to quarterly results."