For example, GPIF typically encourages money managers interested in working with it to join the fund's manager registration system, where they can provide GPIF with updated information on their investment strategies — allowing the fund to retain managers as and when needed without having to go through a lengthy RFP process.
But GPIF's quest over the past year to achieve consistent, positive alpha has included more proactive efforts to identify promising managers.
Rafael Resendes, San Juan-based co-founder and partner with Applied Finance, said in an interview that his firm's road to joining GPIF's manager lineup began with a "cryptic" email in the spring of 2022 from a consulting firm that only said it had been hired "by a large pension fund to identify managers."
The consultant, whom Mr. Resendes declined to identify, expressed an interest in Applied Finance's flagship Valuation 50 strategy, powered by models Mr. Resendes and co-founder Daniel James Obrycki developed in 1995 to produce estimates of a company's intrinsic value.
Tokyo-based money management executives, who declined to be named, said that consulting firm is Applied Academics. A spokeswoman for the firm declined comment.
Over the intervening years, 20 million of those "absolute estimates of worth" have allowed Applied Finance to identify stocks with strong prospects even among companies with relatively high price-to-book or price-earnings multiples, as well as companies that remain overvalued despite the seeming attraction of low multiples, Mr. Resendes said.
"We provide an absolute estimate of worth, which is a very different metric and has a very different set of properties than … the traditional multiple-based value manager," he said.
After that initial contact last spring, Mr. Resendes said his team's initial efforts to learn anything it could about the consulting firm came up empty. In subsequent meetings, however, the consultant revealed who the ultimate client was.
From that point forward began "this non-stop, intense due diligence process...with one or two Zoom calls every week from spring through the end of summer," Mr. Resendes said. The level of interest GPIF and its consulting firm showed in understanding Applied Finance's investment framework has been "amazing," he added.
If consistent returns are the goal, meanwhile, Applied Finance's track record could be of interest.
"If you look at the last 12 years, you sort of had a 10-year golden growth window from 2011 to 2020," followed by a value resurgence since 2021, and the Valuation 50 strategy beat the S&P 500 over both time periods, Mr. Resendes noted.
It remains too soon to know whether GPIF's interest in firms such as Applied Finance can set the stage for the giant fund to employ active managers to greater effect than it has in the past.
The March 2022 end of the latest fiscal year showed GPIF continuing a steady retreat from active management of equities. Both the 2.37% share of the portfolio allocated to actively managed foreign equities and the 1.6% share allocated to actively managed domestic equities were the lowest levels since late 2014, when GPIF more than doubled its equity allocation target to half of its portfolio.
Toward the end of the last fiscal year, meanwhile, Mr. Ueda — in his review of the latest fiscal year — said he slashed the fund's active foreign equity exposures by ¥2 trillion to ¥4.7 trillion.
If the restructuring of GPIF's foreign equity manager lineup is meant to have a meaningful impact on its portfolio, it would likely require not only a reversal of the past year's ¥2 trillion reduction but further allocations to active managers as well.