The Government Pension Investment Fund (Japan)

What Is the Government Pension Investment Fund (Japan)?

The term Government Pension Investment Fund refers to the pension fund for employees of the public sector in Japan. The pension fund is the second-largest pension fund in the world, with approximately $1.6 trillion in assets under management (AUM) as of January 2021. The fund contributes to the stability of the Employee's Pension Insurance and National Pension programs.

Understanding the Government Pension Investment Fund (Japan)

As mentioned above, the Government Pension Investment Fund is the largest in Asia and the second-largest pension fund in the world, second only to the Federal Old-Age and Survivors Insurance Trust Fund and Federal Disability Insurance Trust Fund of the United States.

The fund invests in a mix of domestic and international stocks and bonds, as well as Fiscal and Investment Program bonds. A large number of its assets are invested with external money managers who are selected and monitored by GPIF managers. Only a small portion of the assets in the domestic bond category is invested by in-house investment managers. The majority of the GPIF's assets are allocated to passive investment funds that seek to mirror the returns of a market index within each asset class.

If you're interested in investing in the Japanese market, consider an exchange-traded fund, a mutual fund, or even an American depositary receipt.

The fund aims to achieve investment returns for long-term public pension benefits with minimal risk for the pension system. By doing so, it helps preserve the system's stability. The fund's other goals are as follows:

Another element to the fund's investment strategy is the use of environmental, social, and governance (ESG) investments in its portfolio. The rationale behind this is that socially responsible investing enhances returns for the long-term. The portfolio includes investments in ESG indexes as well as bonds that are both green and sustainable.

Special Considerations

Reserves from the fund and any investment returns are used to pay future pension benefits. This is expected to follow the fiscal plan for roughly a century. According to the fund's 2019 annual report, losses or gains in any specific fiscal year won't harm these reserves. In fact, there is enough in the fund's coffers to continue to pay benefits to future generations to come.

Fee Structure

The GPIF instituted a new fee structure in April 2018. Under the new system, funds that achieve their predetermined investment return target will receive a similar level of fees as they receive now. If the actual return exceeds the target, however, they will be paid progressively more in proportion to the results. A missed target will lead to lower fees, but compensation will still be comparable to the fees paid to passively managed funds with similar amounts of assets under management. Investment returns are evaluated using a time frame of three to five years.