Managers of active strategies for the world's biggest pension fund are going to have to start singing for their suppers.
Japan's ¥162.8 trillion ($1.6 trillion) Government Pension Investment Fund was to roll out performance fees on April 1 that reward active managers in proportion to the alpha they produce, while paying only passive fees for those who come up empty-handed, confirmed Naori Honda, a Tokyo-based spokeswoman for the fund.
Ms. Honda declined to detail how a manager's fees will rise as the alpha it delivers increases.
Executives with the fund's managers, who declined to be named, said negotiations between GPIF and individual firms over the fee arrangements continued in the days leading up to the launch of the new regime. Each firm is being asked to set a target for the alpha it believes it can deliver, as well as delineating the market cycle over which it should be judged.
Some managers said they expect the new fee arrangements hammered out to be fairly uniform for firms in the same asset class; others expect a much wider dispersion. For GPIF, this is "very much an experiment," to see what works and what doesn't, said one executive with an overseas bond manager who declined to be named.
Under GPIF's current fee structure, managers have been able to choose between a fixed fee and a base fee/performance fee combination. The performance fee has been capped at a maximum rate that made it a less-than-compelling option, some managers contended.