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OECD Working Papers on Finance, Insurance and Private Pensions No. 6 - page 18 / 33





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of the members of the investment committee to be full-time staff of the GPIF (in particular senior investment managers).

As with the governing board, an independent and transparent process of appointment of the members of the investment committee would be preferable.

As discussed, the not fully independent structure and nature of the fund may mean that there is a bias towards external fund management, which is not necessarily in the best interest of the fund.

The oversight, management and operational responsibilities of the GPIF are unclear. The Ministry appears to be involved in operational decisions (via required approval) rather than undertaking an oversight role, whilst the decision-making of the GPIF is not transparent (and is dominated by the Chairman appointed by the Ministry), and its involvement in operational decisions vs. the investment committee is also unclear. It is not obvious that the investment committee has any real role, with the Chairman ultimately taking investment decisions (not necessarily based on the investment committee‘s advice). Who sets the investment policy, who sets the strategic asset allocation, who appoints external managers and who is responsible for the day to day oversight of the investments needs clarifying.

3. Other Governance Mechanisms

The OECD guidelines note a series of other governance mechanisms which should be in place, such as:

  • auditors, actuary, custodian: the governance structure of reserve funds (like that of pension funds) usually also includes three other bodies:

    • o

      an independent auditor should be appointed to carry out an annual audit of the fund. Independent performance evaluations are associated with better investment policies. Internal and external governance and performance audits are essential to increase transparency in the operations of the fund and improve accountability. An internal audit committee should be formed with the responsibility for overseeing financial reporting, the external and internal audit, information systems and internal control policies. It is good practice for reserve funds to have an audit committee that meets regularly to assess the adequacy of systems of internal control, review the fund‘s accounts and the external auditor‘s report.

  • o

    in the case of funds that are integrated in the social security institution an actuary would also need to be appointed to carry out the actuarial valuations of the system and analyse the implications of different investment strategies for the system‘s financing;

    • o

      in most instances, it is also a good practice to appoint a custodian who is in charge of the safekeeping of the assets. The appointment of an independent custodian can also ensure a better protection of the fund‘s assets and serve as a check on asset manager transactions.


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