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OECD Working Papers on Finance, Insurance and Private Pensions No. 6 - page 13 / 33





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recommendations, the GPIF should be in charge of drafting and reviewing regularly at least every three years - a detailed statement of investment policy.

Decisions of the GPIF are made by the GPIF Chairman, in consultation with a Chairman‘s Aide (Counselor) and two Auditors (one of whom is from the MHLW), although there is no official Board of Directors. Policy making and operations are under the sole jurisdiction of the Chairman, which implies that the governance of the GPIF is not operating effectively and again that the GPIF is not fully independent. Moreover, the actual authority and responsibility of the senior staff are unclear (as is the relationship with the investment committee see later discussion).

The lack of a Board of Directors that provides independent, professional oversight is a shortcoming in the governance structure of the GPIF a gap which cannot be filled by the Investment Advisory Committee (which has no authority).

The governance structure makes it more likely that the fund will stick to rules and will be affected by

political considerations, stifling change and innovation.

The governance structure of the fund may

therefore encourage its low profile, seemingly low risk, conservative nature which may not be addressing risks fully and certainly means that the potential of the institution is under-utilized.

Another way in which this lack of independent governance may be hurting the fund is that costs are not independently controlled though it should be noted that their absolute levels are relatively low (0.038% AUM). As an Independent Administrative Agency the GPIF decides on its budget but is subject to government wide restraints on operating costs however investment management costs are exempt. This may be creating a bias towards outsourcing, which is not necessarily in the best interests of the fund. On the one hand some reserves funds (e.g. in Sweden) use external managers for at least part of the funds as


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