The Government Pension Investment Fund (Japan)

What Is the Government Pension Investment Fund (Japan)?

The term Government Pension Investment Fund alludes 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 around $1.6 trillion in assets under management (AUM) as of January 2021. The fund adds to the stability of the Employee's Pension Insurance and National Pension programs.

Understanding the Government Pension Investment Fund (Japan)

As referenced over, the Government Pension Investment Fund is the largest in Asia and the second-largest pension fund in the world, second just 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 chosen and observed by GPIF managers. Just 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 look to mirror the returns of a market index within every asset class.

On the off chance that 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 intends to accomplish investment returns for long-term public pension benefits with minimal risk for the pension system. Thusly, it helps save the system's stability. The fund's different objectives are as follows:

• Diversification by investing in various asset classes, geographic locales, and time periods. By keeping a long-term investment horizon, the fund can address short-term volatility while ensuring stable returns. This likewise helps guarantee liquidity so pension benefits can be paid.
• The policy asset mix is determined and managed by the fund, which controls risks at different levels, including asset classes and asset managers. The fund utilizes both active and passive investments, which benchmark returns.
• By fulfilling these obligations, the GPIF can augment medium-to long-term equity investment returns for the benefit of pension beneficiaries.

One more element to the fund's investment strategy is the utilization of environmental, social, and governance (ESG) investments in its portfolio. The reasoning behind this is that socially responsible investing upgrades returns as long as possible. 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 utilized to pay future pension benefits. This is expected to follow the fiscal plan for approximately a century. According to the fund's 2019 annual report, losses or gains in a specific fiscal year won't hurt these reserves. As a matter of fact, there is an adequate number of in the fund's money vaults to continue to pay benefits to people in the future to come.

Fee Structure

The GPIF instituted a new fee structure in April 2018. Under the new system, funds that accomplish their predetermined investment return target will receive a comparable level of fees as they receive now. In the event that the genuine return surpasses the target, nonetheless, they will be paid dynamically more in proportion to the outcomes. A missed target will lead to bring down fees, yet pay will in any case be comparable to the fees paid to passively managed funds with comparable measures of assets under management. Investment returns are assessed using a time span of three to five years.

Features

• The fund plans to pay out benefits from its reserves and investment returns, which are expected to last about 100 years.
• It invests in a mix of domestic and international markets, as well as Fiscal and Investment Program bonds.
• The Government Pension Investment Fund is a pension fund for employees of the public sector in Japan.
• Part of the fund's portfolio is allocated to environmental, social, and governance investment.
• The fund expects to accomplish investment returns for long-term public pension benefits with minimal risk for the pension system.