TOKYO -- Proposals for overhauling the massive Government Pension Investment Fund would see it put talent from the private sector in charge of day-to-day management and adopt committee-style decision-making.
The changes are meant to gin up higher returns and strengthen governance. Critics say the bond-heavy 126 trillion yen ($1.23 trillion) fund, long accustomed to the safety of Japanese government debt, lacks sufficient risk oversight for an impending move deeper into equities.
The overhaul is to proceed in two stages, the first of which requires no new legislation. Sometime around autumn, the GPIF's Investment Committee, which advises on asset allocation, will get several full-time members who will be able to monitor fund operations on a daily basis. All of the current members serve part-time.
The power to make key decisions, such as choosing investments and asset management companies, is now vested in the fund's president. In an effort to correct this imbalance, the fund may appoint a separate chief investment officer, possibly an outsider.
The GPIF will also scout the financial industry for investment professionals to take responsibility for day-to-day management. To attract qualified candidates, it will offer pay packages of at least 10 million yen a year, with a performance-based component. Annual pay at the fund now averages around 7.5 million yen.
The second stage would involve legislation and make fundamental changes to the GPIF's governance. What amounts to the fund's board of directors now has just two members: a president picked from the Bank of Japan and an executive managing director drawn from the Ministry of Health, Labor and Welfare. One proposal would create a decision-making committee like the BOJ's policy board.
The ministry, which oversees the GPIF, will have its social security council discuss these and other proposals for strengthening the pension fund's governance, aiming to propose changes to its governing law next year.
The GPIF will revise its asset allocation guidelines as early as September. The target weighting for government bonds is to drop from 60% to the 40% range, with exposure to domestic equities rising from 12% to as high as 20%.