Opinion: Why GPIF should shrug off loss of 'world's biggest' tag

The Japanese state pension fund can dismiss its dethronement as the world’s largest asset owner, as relative rankings are immaterial to its marathon mission of delivering long-term returns.
Opinion: Why GPIF should shrug off loss of 'world's biggest' tag

For long-term investors like Japan's Government Pension Investment Fund (GPIF), labels such as "world's biggest" are mere vanity metrics, irrelevant to the core task of generating sustainable returns.

The state pension fund would be wise to rhetorically shrug its shoulders at recently being outranked by Norway's sovereign wealth fund in US dollar terms, as compared to some media outlets that sought the tabloid angle.

GPIF’s latest annual report showed its portfolio reached ¥245.98 trillion ($1.53 trillion) as of end-March, trailing Norway’s Government Pension Fund Global’s NOK17.7 trillion ($1.68 trillion) by the same time, managed by Norges Bank Investment Management.

Masataka Miyazono

Masataka Miyazono, GPIF's president, brushed off the dethronement at the annual report press conference on July 5: “Regardless of whether we are number one or number two, we will seek investments that will meet pensioners’ expectations so we will be considered a top-class investor in the world.”

Rhetorically shrugging its shoulders is the sensible and only possible reaction from GPIF. Is the label “world’s biggest” nice to have? Perhaps it does have a certain “wow” effect when networking across the investment industry.

ALSO READ: GPIF reaps record annual gain as active strategy pays off

However, the fund’s diminished US dollar value belies a blockbuster year.

It posted a record gain of ¥45.4 trillion ($282.5 billion) and a return of 22.67% for the fiscal year, second in GPIF history only to the 25.15% return in FY2020. The annual performance lifted the cumulative return to 4.36%, up from 3.59% a year earlier.


Crucially, much of GPIF’s robust 2023 returns were generated in the yen-based domestic market, which suffers optically when translated into a stronger US dollar - its Japanese equity holdings returned 41.41%.

As of July 10, the US dollar had strengthened 14.4% against the yen compared to a year ago.

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

GPIF is mandated to have around half of its assets invested domestically, equally split between equities and fixed income. About 29.6% of its portfolio was in US-based assets. This contrasts with Norway’s fund, which had a whopping 46.9% invested in the US by end-2023.

As such, the fund is delivering returns within the risk-return mandate and portfolio construction constraints it has been granted.

The lower US-dollar value of GPIF’s solid performance therefore only reflects external factors like exchange rates driven by central bank policies and macroeconomic fundamentals -- not investing prowess.


Instead of focusing on rankings, it is worth noting how the fund is working to optimise and educate itself on new trends, displaying a progressive approach to asset management.

For instance, GPIF has taken steps towards a more active approach to investments, with an overall alpha beating benchmarks by +0.04% in FY2023, according to the latest annual report.

ALSO READ: How GPIF uses active management to achieve ESG goals

Surely, a relatively weak yen is a situation to grapple with for GPIF from an investment point of view. Proactive analysis and strategies must be considered to tackle issues like currency hedging, and the outlook for export- or import-oriented Japanese companies.

Overall, however, a steady hand on the rudder is paramount for GPIF.

It is inherent that long-term investors view their task as a marathon, not a sprint. Thus, the key objective for GPIF and its peers, is to adhere to investment mandates and targeted risk-adjusted returns. Everything else is secondary.

Should the US Federal Reserve lower interest rates, this could, among other factors, lead to yen appreciation, potentially reinstating GPIF as the “biggest”.

When that happens, GPIF should again do no more than shrug its shoulders, keep calm and carry on investing for the long term.

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