Japan, owner of the world’s biggest pension fund which is now valued at 129 trillion yen (around USD$1.3 trillion), is now being urged by its lawmakers to overhaul its governing structure as Japan’s politicians push for investing the huge amount of retirement savings – bigger than the whole economy of Mexico – to a wider range of markets and investment targets. Japan Prime Minister Shinzo Abe had already ordered the change in leadership, but the lawmakers want to make sure that the decisions will not fall on the shoulders of one man.
That man, currently, is Government Pension Investment Fund (GPIF) President Takahiro Mitani. He was appointed by Japan’s Ministry of Health, Labor and Welfare, and was encouraged to pursue a low-risk, low-return strategy, with a heavy tendency towards domestic bonds and mostly passive exposure to stocks. The government’s new plan would see Mitani replaced by a board of experts, and they in turn will decide on a more aggressive approach to investment. Abe and other economic experts are seeing that the huge fund could be a great boost to help overcome Japan’s prolonged period of deflation.
Masahiko Shibayama, a lawmaker who is part of Prime Minister Abe’s ruling Liberal Democratic Party and is close to the premier himself, says that a proposal should be in place in the next few weeks, this after consulting with relevant ministries and Keidanren, Japan’s top business association. “We definitely want to make a big corporate governance change,” Shibayama, who heads a financial markets and governance reform group within the LDP, said. “We want to put several people on the board, so they can have a good discussion about the appropriate mix of assets.”
A governance structure change in the GPIF is expected by most, as Abe said that this is a key feature of the second round of the government’s growth strategy. Until now, insiders have been saying that the government’s focus was on changing GPIF’s investment style, culminating in last month’s appointment of six new members to the external advisory committee. “The health ministry will probably insist that the investment committee is enough, but we don’t think so,” Shibayama said. A new governance framework is likely to boost GPIF’s currently meager resources – total personnel costs in the organization in 2013 came to 711 million yen, a very low total compared to personnel costs at pension funds not nearly half the GPIF’s size.