Japan's GPIF reaps record annual gain as active strategy pays off

The Japanese state pension fund beats the market with record gains, as its active management push on equities picks up steam.
Japan's GPIF reaps record annual gain as active strategy pays off

Japan’s Government Pension Investment Fund (GPIF) posted a record yen gain of ¥45.4 trillion ($282.5 billion) on equities rally for the fiscal year ended March (FY2023), reaping the fruit from its active management strategy.

Eiji Ueda

The government-backed fund generated a return of 22.67% - second only to the return in FY2020’s 25.15%, with an overall alpha beating benchmarks by +0.04%, according to its annual report released on July 5.

The performance brought the total portfolio to ¥245.98 trillion ($1.53 trillion).

Yet, Eiji Ueda, chief investment officer (CIO) at GPIF, described this excess return as “not large at all”.

Given the sheer size of GPIF’s assets under management, it will be “extremely difficult” to deliver a high excess return of 1% or more without a higher risk of exposure.

“However, if we can steadily achieve excess returns of even 0.1% or 0.2% every year and accumulate them, the compound interest effect will add up to a very large return over the long term,” Ueda wrote in the report.


GPIF said it had earned an excess return of ¥130 billion from its active investment in Japanese and foreign equities, a new initiative by Ueda after he assumed the role of CIO in April 2020.

“The investment period is still short, and ongoing confirmation and verification of evaluation and selection methods is necessary, so it is too early to evaluate the stability of the return relative to risk,” Ueda wrote.

However, he noted that the information ratio – excess return per unit of risk – during the period was 1.93 for equities of the combined North American and developed countries, excluding Japanese stocks, for which the portfolio is being constructed.

“We expect that excess returns will continue to be earned in the future,” Ueda said.

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The pension giant hired 23 new managers for active investments in Japanese equities and 14 managers for foreign equities during FY2023. Meanwhile, it ended contracts with seven active managers for foreign bonds and five active managers for foreign stocks, both the biggest number of cancelations in the past decade.

The investment balance through these investment trustees that perform active equities management was approximately ¥10 trillion yen as of the end of FY2023.


GPIF’s holdings of Japanese and foreign equities generated returns of 41.41% and 40.06%, respectively, during FY2023. For Japanese and foreign fixed income, the returns were -2% and 15.83%, respectively.

The +0.04% alpha compared to benchmarks was divided into +0.20% from Japanese fixed income, +0.51% from foreign fixed income, +0.07% from Japanese equities, and -0.57% from foreign equities. GPIF targets a portfolio with a 25% allocation to each of these four asset classes.

In foreign equities, the new active portfolio strategy contributed positively, but alternative investments had a negative impact, a Tokyo-based investment adviser familiar with GPIF's strategy told AsianInvestor.

ALSO READ: How Japan’s GPIF avoids inflated values in alternatives

From FY2023, GPIF’s alternative assets have been classified into four asset classes based on their risk-return characteristics. While private equity is classified as 100% equities, investments in infrastructure and real estate fall into the category of 50% fixed income and 50% equities, creating a distinct focus.

As such, the alpha from traditional assets including private equity was +0.25% above benchmarks, despite a -0.05% contribution from private equity. Infrastructure and real estate, including currency hedges, contributed -0.21%.

“They want to say that most of the negative contribution in alpha came from alternative assets in which recent market appreciation hasn’t been reflected compared to traditional equities,” the investment adviser said.

As of March 31, GPIF’s alternatives portfolio was valued at ¥3.7 trillion, making up 1.46% of the total portfolio and well below the cap of 5%.

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