Up to ¥2 trillion, or almost $15 billion, could be up for grabs as GPIF — in the wake of across-the-board underperformance by its active foreign equity managers last year — searches for a formula capable of eliciting steadier gains from what remains a 3% sliver of its portfolio but one that can still have an outsized influence on the broader fund's benchmark-relative returns.
In a review of the year that hinted at a surprisingly tactical approach to steering the world's biggest pension fund through recent storms, Mr. Ueda said in response to a rapid rise in volatility during the latter half of the year, he trimmed roughly ¥2 trillion from GPIF's active foreign equity allocations. All seven incumbent managers underperformed, offsetting outperformance by the fund's bond and domestic equity managers and leaving the broader portfolio trailing its policy benchmarks by 6 basis points for the year.
That risk-reduction gambit will provide GPIF with an opportunity to secure greater diversification benefits and lessen concentration risk by adding more equity managers. "We are considering selecting active funds in the North American market, which currently has the most options," he noted.
One Tokyo-based analyst, who declined to be named, said Mr. Ueda's latest comments point to a short-term focus, and considerable sensitivity to periods of "minus alpha."
Mr. Ueda, through a spokeswoman, declined to make any comments above and beyond his two-page review of the year in GPIF's latest annual report.
Ahead of last year's ¥2 trillion shakeup for the sector, three of GPIF's seven incumbent international equity managers had been overseeing more than ¥1.2 trillion each of the fund's allocations, or roughly 65% of a ¥5.7 trillion active portfolio. Passive foreign equity managers ran another ¥42.8 trillion.
The March 31 close of the latest fiscal year found the pie being distributed more evenly among GPIF's five managers with MSCI World ex-Japan benchmarks:
GPIF's two managers with emerging markets benchmarks — Allspring Global Investments and Lazard Asset Management — each saw reductions of about 10%.
GPIF ended the fiscal year with ¥4.7 trillion in active global equity allocations, down from ¥5.7 trillion the year before, with the MSCI World ex-Japan index's almost 23% gain for the 12 months through March 31 apparently offsetting some of that ¥2 trillion reduction.
A GPIF spokeswoman confirmed that, with the fund maintaining a registration system that allows money managers to provide GPIF with updated information about their businesses, no RFP will be required to move forward with those plans. It remains unclear, meanwhile, whether all of the ¥2 trillion will be redirected to newly hired managers, she said.