On Aug. 9, GPIF released the names of its latest hires, with heavyweights such as BlackRock and J.P. Morgan Asset Management (U.K.) Ltd. rubbing elbows with smaller firms, among them Osmosis Investment Management U.K. Ltd., a London-based sustainable investing boutique with $13.6 billion in assets under management, and Montreal-based Montrusco Bolton Investments Inc., with $10.7 billion.
At the same time, GPIF announced contract extensions for three of its seven legacy managers: Allspring Global Investments, Baillie Gifford Overseas and Lazard Asset Management.
The same pattern prevailed earlier in January when GPIF released details of its 16 new U.S.-focused managers. Household names such as Fidelity Institutional Asset Management and T. Rowe Price Associates shared the spotlight with boutiques such as Applied Finance Capital Management LLC, a $2.5 billion San Juan, Puerto Rico-based U.S. equities manager, and Jacobs Levy Equity Management, a Florham Park, N.Y.-based manager with $12.9 billion in assets.
GPIF's hiring spree followed weak performance the year before by the fund's seven incumbent managers — Allspring, MFS Investment Management, Intech Investment Management, Walter Scott & Partners, Baillie Gifford Overseas, UBS Asset Management (U.K.) and Lazard Asset Management — which prompted Eiji Ueda, the fund's chief investment officer, in his review of the fiscal year ended March 31, 2022, to call for urgent steps to "increase the number of active funds GPIF employs" as quickly as possible.
The restructuring, meanwhile, won't stop with overseas equities.
Mr. Ueda, in an emailed response to questions, said the same kind of makeover — spreading active allocations across an expanded roster of managers — could be extended next to Japanese equities as well as domestic and overseas bonds.
Whether money managers welcome or lament those changes appears to depend in large part on whether they worked for GPIF during the salad days when the pension giant was handing out mandates as large as ¥1.2 trillion, or $10 billion at prevailing exchange rates, as it did for Intech, Baillie Gifford and UBS Asset Management (U.K.) for the fiscal year ended March 31, 2021.
An executive with one manager which has looked after multibillion-dollar mandates for GPIF, who declined to be named, said the allure of working with the giant pension fund has been much diminished, in line with the reduced scale of its mandates.
By contrast, the head of one boutique that garnered a first-time GPIF mandate of less than a $1 billion last year, who likewise declined to be named, called the arrangement a very attractive one for any manager confident in its ability to deliver alpha over a cycle.
But if GPIF went to considerable lengths to restructure its active foreign equities portfolio over the past year, it didn't appear to pull out all the stops to amplify the impact of those changes in terms of moving the needle for the broader portfolio. Active allocations for the fiscal year ended March 31 fell to a historic low of ¥3.2 trillion, or 1.61% of the portfolio, down from ¥4.7 trillion the year before and ¥5.7 trillion the year before that.
Asked about the seeming contradiction, Mr. Ueda called the roughly ¥2 trillion GPIF divvied up last year among its new managers "just the beginning."
"We would like to allocate more to equity active fund managers as long as we have reasonable evidence and confidence that this effort will improve (the) risk return of our portfolio," he said.
GPIF has pursued initiatives in the past aimed at squeezing more consistent alpha from the fund's active allocations, such as the introduction in 2018 of a performance fee structure meant to better align the interests of managers with the fund. Until now, however, returns have remained volatile — especially for foreign equities: GPIF's latest annual report showed the fund's active foreign equity managers trailing their benchmarks by 1.57 percentage points for the 12 months through March 31 and by an annualized 53 basis points for the past 10 years.
But if active returns remain mixed, Mr. Ueda, in his review for the latest fiscal year ended March 31, called the continued pursuit of alpha crucial for a fund that can add ¥200 billion to its portfolio with only 10 basis points of outperformance.
This time around, however, GPIF will take a broader approach to that pursuit — for example, not simply looking at the extent to which the fund's active managers exceed their benchmarks but expanding its focus to target "aggregate" returns from mandates and passive exposures that are being sliced and diced more finely than in decades past, he said.
Until the latest year, almost all of GPIF's active foreign equity allocations were benchmarked to broad MSCI indexes — either the MSCI World ex-Japan index or the MSCI All Country World Index ex-Japan. The annual report's breakdown of mandates as of March 31, by contrast, showed GPIF's newly hired U.S. equity managers benchmarked against the S&P 500 and a range of FTSE Russell growth and value indexes. On the passive side as well, new mandates were benchmarked to indexes such as the MSCI U.S. 100, MSCI Canada, and MSCI U.S. Large Cap Growth and MSCI Large Cap Value.
Masataka Miyazono, GPIF's president, at a recent news briefing said the fund will utilize that expanded array of passive exposures to allow for a more active approach to allocating capital, with an eye to controlling risk and seeking excess returns.
Mr. Ueda, by way of example, noted in his email that "the performance of the S&P 500 is determined by a limited number of mega-cap names but we found that there are some excellent active equity fund managers who can select good performing stocks outside of those mega-cap names. It is better for us to work with those managers and have risk adjusted passive funds like (the) MSCI U.S. 100."