Japan’s Government Pension Investment Fund issues RFP to analyse asset manager pay

It follows a major fee overhaul for actively managed equities earlier this year

Japan’s giant Government Pension Investment Fund (GPIF) will be analysing the results of a survey on pay conducted last year among the fund’s external equities and fixed income managers.

To facilitate this, the $1.3trn fund has issued a request for proposals (RFP) aimed at human resource consultants to provide the relevant technical expertise for the exercise.

According to GPIF’s 2018 Stewardship Activities Report, the aim of the exercise is to examine whether current compensation schemes are “designed to increase long-term returns”.

RI understands that the fund – which has just selected its first low-carbon indices as benchmarks – is considering individually engaging with asset managers based on the conclusions of the analysis, although no specific course of action has been decided.

The fund, which calls itself a “super-long-term investor”, recently instituted a number of reforms on remuneration aimed at strengthening “the alignment of interest with external asset managers” particularly in relation to long-term performance.

Speaking at the RI Europe event in 2017, Hiromichi Mizuno, Executive Managing Director and Chief Investment Officer of the giant fund, said fund managers would receive “smaller cheques” if they didn’t perform on corporate governance.In April this year, the fund introduced a performance-based fee structure in which loss-making active asset managers are to be paid a reduced base fee rate equivalent to passive management fees.

Managers who deliver excess returns will start to accrue performance-linked fees, with 45% payable in the first year while the remainder will be “carried over” to the following year. Pay for subsequent years will then be determined by current year performance and carry over from the previous years.

However, net losses will also be carried over if it exceeds the accrued performance-linked pay from previous years.

In return, GPIF has committed to “multi-year contracts” to allow external managers to meet performance targets over the medium to long term.

According to the FT, active managers for GPIF include JPMorgan AM, Amundi, Schroders, Invesco, Eastspring, Nomura, Fidelity International and UBS.

In the 2017 reporting year (April-March), GPIF posted an annual gain of 6.9%, the best return in three years, despite losses in the final quarter due to a strengthening Yen and US-China trade friction.