Finally, this diversification could have a benefit over and above simply delivering higher performance. The GPIF has the capacity to become an internationally recognized, globally leading investment institution. Taking a truly long-term approach to investment (e.g. releasing long-term performance number rather than just quarterly data) could have a profound impact on the investment community in Japan, and indeed worldwide. This could also help to develop Tokyo as a centre of excellence in portfolio management, leading to the creation of a group of investment professionals who can compete with best in the world in such globally developing areas as private equity investing, infrastructure investing, emerging markets.25
The OECD‘s work on corporate governance argues that there is a growing global consensus that global capitalist structure which includes knowledgeable, properly motivated institutional owners would reduce agency related frictions in the capitalist system.26 Independent, high performance national reserve funds are ideally suited to play such a role and indeed are already doing so in other countries. A redefined and restructured GPIF would accelerate this process for the benefit of all.
Though the GPIF was deliberately set up to manage the transition from investing Japan‘s pension reserve funds in public projects via government agencies to a more independent, financial return based investment structure (i.e. on a more politically independent basis), the governance structure of the fund falls short of international best practice and may be constraining the performance of the fund.
The GPIF conforms with some of the OECD‘s governance and risk-management guidelines, but it falls short in terms of the key recommendations for any reserve fund, that it should be truly autonomous and independent from political influence, with a clear separation of oversight and operational roles, and appropriate expertise on the board, committees, and management.
Unlike in other countries where this is the case, this does not mean that the fund is being used for political ends and aims other than to fund future pension obligations. Indeed, the GPIF was set up in recent years precisely in order to focus its objectives and as the previous aim of using pension reserves to fund economic and infrastructure development within the country were largely achieved.
Rather the issue is that the GPIF has been turned into a low-profile, seemingly low risk, low cost, limited return organization.
NB, although the OECD does not directly promote socially responsible investing (SRI) investing, such a stance could help the Japanese government meet its targets for increased overseas investment in regions such as Africa.
See OECD report on ‗Corporate Governance Lessons from the Financial Crisis’ http://www.oecd.org/dataoecd/32/1/42229620.pdf