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OECD Working Papers on Finance, Insurance and Private Pensions No. 6 - page 23 / 33





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expense which could generate potential returns. The investment mandate, as well as the organisation and governance structure chosen for the GPIF, drives it towards a cost and risk minimizing culture.

Six of the eight reserve funds surveyed in the OECD 2008 report are also signatories of the UNEP FI‘s Principles of Responsible Investment (Canada, France, Ireland, New Zealand, Norway and Sweden). The GPIF may therefore be out of step with its international peers in this area.

b) Strategic Asset Allocation

OECD guidelines note that the strategic asset allocation of a pension fund should be put in place to deliver the investment objectives of the fund. The asset allocation should be set in the statement of investment policy and there should be a process for a regular review of that policy, at least every three years.

OECD reserve funds tend to have a high exposure to equity and other asset classes in the higher risk- return spectrum, including in some cases real estate, private equity, hedge funds, commodities, and other alternative investments. In countries like Australia, Canada, France, Ireland, New Zealand, and Norway reserve funds had over 50% of their portfolios in such asset classes as of December 2009. They are also increasingly investing overseas. For instance, as of end 2009, reserve funds in New Zealand, Sweden, France, Portugal, and Canada had over 70% of their equity portfolios invested abroad.


It is interesting to note that although the long-term rate of return for the fund was adjusted from 3.2% to 4.1% there has been no change in the GPIF‘s strategic asset allocation because the investment target was unchanged as a result. Again the independence of the organization may be an issue (currently to change the target portfolio it is necessary to change the medium term plan which requires the approval of the MHLW and the MOF).

At present, 67% of the Fund is allocated to domestic bonds, 11% to domestic equity, 8% to foreign bonds, 9% to foreign equities and 5% to short-term liquidity, making it one of the more conservative of the


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