GPIF reallocates $3.7bn to Morningstar gender fund

Japan’s Government Pension Investment Fund (GPIF) has pulled $3.7 billion from existing ESG mandates which will be reinvested in a Morningstar gender-tilted Japan index.

The $1.4 trillion pension fund, regarded as the largest in the world, did not disclose which of its existing funds would be impacted but said the move was part of a portfolio-wide “risk management” exercise.

The reallocation is the most recent gender-focused mandate to be announced by GPIF since a $2.9 billion investment into Morningstar’s Developed Markets ex-Japan Gender Diversity Index in 2020.

It will provide the fund with broad market exposure to the Japanese economy – representing the top 97 percent of the investable equity market by market cap – with a focus on gender equality, and will complement GPIF’s existing investment in Morningstar’s gender diversity index, now worth around $3.4 billion.

Japan ranks below the global average on senior female representation in the workplace.

The Morningstar Japan ex-REIT Gender Diversity Tilt Index uses assessments by gender diversity data provider Equileap to tilt constituent weightings in favour of companies with class-leading corporate policies and those with a track record of ensuring equal opportunity for employees.

Equileap’s report cards are based on 19 criteria, including the gender balance of senior management, the gender pay gap and policies around parental leave and sexual harassment. Companies implicated in legal cases involving gender-based violence and discrimination are excluded for 12 months.

Index constituents are ranked in descending order into five groups based on their Equileap scores and a tilt factor ranging from 1.5 times to 0.5 times is applied to each group’s free float market cap to determine their weighting. Individual constituent weights are capped at 5 percent and sector weights are kept equal to the parent index.

Morningstar will publish annual reports showing the five groups and their member companies as a “signal” to index constituents, according to the data provider’s director of ESG product management, Rob Edwards.

“What this index is trying to achieve is create awareness around this topic by showing companies where they stand and telling them that if, for example, they are in the bottom group, then there is a lot of room for improvement,” he said. “We think this index can do a lot of good, considering the Japan market is a bit of a laggard on gender diversity.”

The index has low tracking error and turnover versus its parent benchmark, the Morningstar Japan ex-REIT Index. Backtested data show that the index delivered a total return of 5.83 percent vs the TOPIX’s 5.7 percent over the past three years.

GPIF, which manages the vast majority of its $1.5 trillion portfolio passively, separately announced that it would modify the construction methodology of the MSCI Japan Empowering Women Index.

In 2017, the fund allocated an undisclosed amount to the index, which incorporates a tilt based on company initiatives “for empowering women”. However, GPIF said that performance had begun to deteriorate due to an MSCI adjustment centred on a proprietary Quality Score – a calculation based on return on equity, debt ratio and profit variability.

The adjustment will no longer be applied from May onwards, GPIF confirmed.