How Japan’s GPIF avoids inflated values in alternatives

Partnerships with aligned asset owners are one of the ways to gain access to good returns beyond leverage in private markets, the CIO of the world’s largest pension fund says in an exclusive interview.
How Japan’s GPIF avoids inflated values in alternatives

Japan’s Government Pension Investment Fund (GPIF), the world’s largest asset owner, now uses partnerships with other asset owners to find deals, its chief investment officer told AsianInvestor.

It also has imposed high requirements for its alternative investments when it comes to the amount of leverage used to create returns.

Eiji Ueda

“The risk-free rate is going up, so we are carefully analysing and bifurcating alternative asset returns to see how much is coming from leverage and how much is from actual value added to the assets,” Eiji Ueda, CIO and executive managing director at GPIF, said.

The risk-free rate of return is the theoretical rate of return that an investor would expect on an investment with zero risk. In practice, the risk-free rate is commonly considered to be equal to the interest paid on a 10-year, highly rated US Treasury note, due to its relatively safe nature.

With interest rates generally rising in the last two years, government bond yields have been buoyed, and therefore alternative investments are increasingly required to provide attractive returns without the risk from using leverage, Ueda argued.

“Overall, alternative assets are not included in our benchmark, so anything we invest into alternatives must be done because we believe those investment performance will be better than traditional asset classes,” he said.

As of end-2023, GPIF had 1.53%, or ¥3.4 trillion ($22 billion) invested in alternative investments, out of total portfolio of ¥224.7 trillion ($1.4 trillion). The current cap on the share of alternatives in the portfolio is at 5%.


Partnerships with other asset owners is one path that GPIF follows to source the right alternative investments.

In April, GPIF launched a joint investment program with Dutch pension manager APG dedicated to infrastructure in developed overseas markets.

“The main reason for this partnership with APG is that we believe that core infrastructure investments will have very good returns for our fund in the future. This is the base for all selection of private funds,” Ueda said.

Additionally, the GPIF CIO also highlighted the value of alignment with other asset owners, especially public pension funds.

“The fiduciary beliefs should always be there, so the funds we invest in must have alignment of interests with us. With other public pension funds, they probably understand each other’s objectives beyond alignment of interests, [so] we are even more on the same page,” Ueda said.

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He sees the potential for more investment partnerships with other asset owners, specifically within alternative investments.

“Based on experience, the limited access to deals in private markets is a bigger factor than in public markets, so future partnerships will probably mostly be done in alternatives,” Ueda said.

He emphasised that some of the value of such partnerships can be derived in the long-term, possibly over 10-15 years.

The APG partnership was agreed after thorough analysis and a relationship built, for instance, through the Global Asset Owners’ Forum, for which GPIF served as an organiser. The most recent event was held Tokyo in October 2023.

The California Public Employees' Retirement System (CalPERS) and The California State Teachers' Retirement System (CalSTRS) were the other organisers. Participants included APG, Norges Bank Investment Management from Norway, HESTA from Australia, and Singapore’s Temasek.

“For the APG partnership, I think it's quite a pleasure to work with one of the outstanding public pension funds around the globe,” Ueda said.


Ueda noted the end of a historic period during which risk assets rallied, especially after the global financial crisis in 2008.

Interest rates have again reached relatively high levels in developed markets, he said, and capital is no longer cheap, making it hard to lend in private market deals.

“From 2008 until recently were great years to invest in risk assets with leverage, but we are now facing a higher risk-free rate now, especially in the United States, which is the biggest capital market, but also in the rest of the world,” Ueda said.

Also read: Top 20 pension executives in Asia: Eiji Ueda

GPIF is working under the notion that outsized returns made off of leverage may be a thing of the past due to interest rates that will remain at a certain elevated level, according to its CIO.

Alternative investments will remain relevant for GPIF if the returns make it worthwhile, he said. However, due diligence will focus even more on the underlying assets within private equity, and on real assets within real estate and infrastructure, where GPIF currently invests on the equity side.

“We are spending a lot of time analysing the past data and transactions done in the markets to really understand where the value came from – whether it was actual value to the assets or from leverage. Though that analysis, we will become more comfortable to invest in alternatives in the current macroeconomic environment,” Ueda said.

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