(February 23, 2011) — Chairman Takahiro Mitani of Japan’s $1.4 trillion Government Pension Investment Fund (GPIF), the world’s largest and thus first on the aiGlobal 500 listing of the world’s largest asset owners, has called on the government to help rescue the nation from its growing debt before it reaches a critical point.
“We are not thinking of changing our basic portfolio as a result of ratings changes by credit rating companies,” Mitani told Reuters, noting that the fund aims to diversify its portfolio by increasingly investing in emerging markets. In the six month period to September, the performance of GPIF, which has an asset size larger than both the Canadian and Indian economies, was negative 1.5%, compared with a positive 7.91% for the entire financial year that ended last March.
The statements by Mitani over Japan’s burgeoning public debt, amounting to double the size of its $5 trillion economy, follows the decision by Moody’s Investors Service to change the outlook on Japan’s Aa2 sovereign rating to negative from stable. It also comes about a month after Standard & Poor’s downgraded the government’s sovereign debt rating, with both Moody’s and the S&P asserting long-term fiscal unsustainability of the country’s debt.
Late last year, the fund came under fire from an Organization for Economic Co-operation and Development (OECD) report. The report, focusing on both governance and investment strategy issues at the GPIF, followed a set of 2006 reforms at the fund. “While much improved,” the report states, referring to previous reforms, “the new governance structure still falls short of international best practices and in some aspects does not meet some of the basic criteria contained in OECD recommendations.”
Among the report’s complaints relating to governance, the GPIF still is not required to put its investment policy in writing, and there remains uncertainty surrounding the issue of whether the fund’s Board sets – or simply recommends – the investment policy. Also concerning to the OECD was the fact that the responsibilities of Chairman of the Board, Chief Executive Officer, and Chief Investment Officer all coalesce in one man – currently Takahiro Mitani. “The lack of a clear separation between operational and oversight roles within the fund is a major problem that goes against OECD recommendations,” the report stated before recommending that the roles be distinct. Furthermore, the report asserted, a more robust staff should be hired.
<p>To contact the <em>aiCIO</em> editors of this story: Kip McDaniel at <a href='mailto:kmcdaniel@assetinternational.com'>kmcdaniel@assetinternational.com</a> and Paula Vasan at <a href='mailto:pvasan@assetinternational.com'>pvasan@assetinternational.com</a></p>