The Government Pension Investment Fund's latest annual report offers evidence that, despite a new performance fee structure that slashed payouts to managers the year before, the ¥150.6 trillion ($1.4 trillion) pension fund giant remains willing to pay for alpha.
That's not immediately apparent from the year's total fee payouts, which edged up to ¥31.9 billion from ¥29.5 billion the year before — unchanged at 2 basis points of the portfolio.
That total is well below the record ¥48.7 billion GPIF paid to managers for the fiscal year ended March 31, 2018, before it introduced a program offering only a passive fee to active managers that fail to deliver alpha. At the same time, it lifted previous ceilings on performance fees that managers can earn.
But the latest manager-specific payout details unveiled once a year by GPIF showed a handful of managers earning handsome fees.
A Tokyo-based spokeswoman for GPIF declined to provide any further comments on the fund's fee structure beyond the information available in its annual report.
For the fiscal year ended March 31, GPIF's portfolio dropped 5.2%, with foreign equities falling 13.1%, domestic equities declining 9.7%, domestic bonds down -0.36% and foreign bonds gaining 3.55% .
The fee gains were led by the fund's eight active foreign equity managers, half of which bested their benchmarks by a healthy margin. As a group, fees paid to the octet jumped to ¥15.5 billion, or just less than half of the year's total, from ¥10.7 billion the year before.
Leading the way was BNY Mellon Investment Management affiliate Walter Scott & Partners Ltd., Edinburgh, which delivered more alpha for the March 31 fiscal year than any other of GPIF's roughly 45 active managers, topping its MSCI Kokusai benchmark by 7.8 percentage points.
For its efforts, GPIF paid Walter Scott ¥4.14 billion, up from ¥2.30 billion the year before, according to estimates by Pensions & Investments based on the three-year, manager-specific fee numbers the pension fund provides.
That amounts to an 89-basis-point fee margin for the ¥466.4 billion portfolio of international equities Walter Scott managed for GPIF for the latest fiscal year, more than double the 40.5-basis-point margin the firm earned two years before, under the previous fee structure.
Likewise, UBS Asset Management, which exceeded its benchmark by 4.66 percentage points, saw its average fee over the three years through March 31 surge to 43 basis points, up from 24.8 basis points for 2019's three-year average.
UBS' margin was 18.8 basis points for the final three years of the old fee system through March 31, 2018.
(Starting with the fiscal year ended March 2016, GPIF switched to providing manager-specific fee figures for three-year periods, ending its practice of releasing single-year fee data. Single-year fee data for managers with mandates dating back to the fiscal year ended March 2014 can still be calculated; fees for managers with more recent mandates can only be judged on the basis of rolling three-year averages.)