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OECD Working Papers on Finance, Insurance and Private Pensions No. 6 - page 30 / 33





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board on passive vs. active investment and other aspects of the investment policy, selecting external managers, choosing specific assets, managing the tactical asset allocation around the strategic target and have day to day responsibility for the investments of the fund.

  • With the help of the investment committee, the GPIF Board should draft and regularly review a

detailed statement of investment policy which should be publicly disclosed.

The investment committee should be turned into an integral governance body all members should be subject to strict requirements on investment professional experience, covering academic as well as other relevant transparent appointment and dismissal process should be established.

of the GPIF knowledge experience.

and and A

  • The investment committee should include some full-time staff of the GPIF such as the CEO, CIO and possibly other senior investment managers as well as the chair of the Board of Directors. External experts should be appointed to serve the committee on an ad-hoc basis. There is no particular reason to have labour or management representatives in the investment committee. The representation of these stakeholders should be transferred to the Board of Directors.

  • Other governance bodies (e.g. audit committee, governance committee, risk-management committee) should be established.

  • Risk management should be upgraded with greater focus given to external manager‘s own risk

controls and outsourcing risks.

  • The GPIF Board should report annually to the MHLW as well as to the Japanese Diet.

  • The public disclosure of the GPIF should be improved - including publishing long-term investment returns as well as quarterly numbers, a detailed statement of investment policy, a code of conduct and a conflicts of interest policy.

  • Some specific details of the governance of the investment management process also need to be reformed. In particular, the GPIF needs to establish a transparent, market-based, ongoing performance target and benchmark, referencing the long-term actuarial performance goal set by the MHLW and linking it clearly to the strategic investment allocation of the fund.

While the purpose of this report is not to provide specific recommendations on the design of the GPIF‘s investment policy, there are some issues that should be considered once the governance structure is reformed. These include the following:

  • The GPIF should consider whether the investment strategy as it stands provides sufficient diversification given the high level of exposure to Japanese government bonds. This issue is beyond the scope of this paper and should be considered carefully in the light of the growing debt burden of the Japanese government and the general risk apprehension of the Japanese population.


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