Hiromichi Mizuno, executive managing director and CIO of Japan's Government Pension Investment Fund, highlighted ways in which asset owners could work together to hold costs in check and benchmark environmental, social and governance factors, Mr. Mizuno said Tuesday at an investment committee education workshop of the $376.3 billion California Public Employees Retirement System, Sacramento.
Under GPIF's performance fee strategy, launched 16 months ago, active managers are only paid active management fees if they outperform passive strategies, Managers that fail to outperform their benchmarks are paid like passive managers, Mr. Mizuno told the committee.
"We saved $200 million in active management fees last year because active managers failed to deliver alpha," he said. "If you don't deliver alpha, you are as good as passive."
He said that when GPIF unveiled the program managers asked if they would keep the framework confidential. Instead, GPIF published a white paper.
At the CalPERS meeting, Mr. Mizuno called for asset owner collaboration to make GPIF's fee program an industry practice.
Mr. Mizuno recalled that when he was general partner with the London-based private-equity firm Coller Capital, "we used to hate CalPERS because CalPERS disclosed everything. Now, I'm at the GPIF. I'm telling the GP we're going to disclose everything. The point is, if CalPERS is only one, it will work against you guys. But if we join and if other people will join, it will become market standard."
GPIF executives see ESG as a risk factor and have incorporated it into the fund's investment strategy. He added that if an asset owner reduces a risk factor, returns will improve.
GPIF executives worked with an index provider for a year to develop a benchmark.
Mr. Mizuno said it will be difficult to show whether GPIF's ESG initiative is adding value to its portfolio over the next month or even the next three years. "But I believe that in 30 years time, these kind of things will have a huge impact," he said. Portfolio strategy aside, both funds are at the mercy of the general economy, Mr. Mizuno said. "And if the general economy fails to be sustainable, we will fail to be sustainable."