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OECD Working Papers on Finance, Insurance and Private Pensions No. 6 - page 21 / 33





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there is some disclosure from the GPIF (e.g. the GPIF must present its

independently audited financial statements to the MOHLW for approval, and then the accounts are disclosed to the general public. The GPIF also discloses publicly on a quarterly basis the result and status of its investments) - but there is room for improvement. Rebuilding trust in the pension system in Japan is important (given the problems with records in previous years). Transparent disclosure from the reserve fund (and showing it is a globally leading institution) would provide an excellent way to achieve this.

III. Investment

This section will examine the investment strategy of GPIF and its compatibility with OECD guidance and international good practice. The aim of this paper is not to propose an investment strategy for the fund

  • a highly complex and expert undertaking. Rather, the risks which the current strategy represent will be

highlighted and potential ways for reducing these and for unlocking the potential of the fund will be suggested.

a) Investment Policy

The OECD guidelines note that the governing body of the pension fund should set forth in a written statement and actively observe an overall investment policy, which established clear investment objectives (compatible with the characteristics of the fund). As a minimum, the policy should cover:

  • The strategic asset allocation (main asset classes);

  • The extent to which external managers may be used and how they are to be selected and monitored;

  • To what extent and how active investment management will be pursued; and

  • The criteria for assessing the performance of the reserve fund and the different portfolio


This is even more important for reserve funds. Reserve funds, like pension funds, require a clear mission statement and measurable objectives to enhance their efficient management and raise the accountability of the governing body. Reserve funds do not normally have national competitors or even peers, as is the case with pension funds. Hence, their performance (including not just investment performance but also their operational efficiency) can only be benchmarked against any initial objectives set or, as far as relevant, against foreign reserve funds. Reserve funds support pension systems that do not have a full-funding goal in mind. Hence, investment objectives may not be readily established with regards to liabilities, time horizon or risk aversion. Reserve funds should have clear mandates and specific measurable objectives, such as funding ratio and investment return targets. The performance of the board should be measured against these objectives.

an honour to sit on the board, and members should not need to be paid (which helps conflicts of interest and gets away from civil service pay restrictions)


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