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World’s largest pension fund is promoting an ESG future

GPIF want to make the market more sustainable not beat it

Pension Fund Promoting Esg Future

On Tuesday August 20th Executive Managing Director and Chief Investment Officer of GPIF (Japanese Government Pension Investment Fund) Hiro Mizuno will give a keynote presentation with performance fees and sustainable investing being the main two talking points.

GPIF is the world’s largest pension fund with over 1.5 trillion in total assets.

GPIF’s main driver in recent years has been against “Shortism”. GPIF want to focus on building a more sustainable market rather than focusing on beating it.

ESG investing

Impressively, ESG investments comprise the entire GPIF portfolio as they target long-term returns and long-term value.

The ESG ethos is so strong that a Harvard Business School case study featured GPIF earlier in the year.

Their main principle asks investment managers to integrate ESG and to commit to the UN supported Principles for Responsible Investment or RPI that the fund signed in 2015. GPIF expect their asset managers to;

  • Understand and apply GPIF's Stewardship Principles and Proxy Voting Principles
  • Implement an internal compensation scheme that promotes long-termism
  • Practice good governance and work to prevent conflicts of interest
  • Improve disclosure with respect to voting, ESG materiality and TCFD recommendations
  • Integrate ESG in line with investment style

Performance based fees

There are two basic rules that GPIF follow in order to promote their sustainable ethos;

  1. Active managers should be paid based on the alpha they generate
  2. Payments should be linked to long term performance in order to encourage investments with a longer-term motive

If no alpha is generated, they receive the same fees as passive managers.

This fee structure was introduced 1 year ago and since, the fund has paid much smaller fees, roughly 40% fewer.

However, with fees being paid based on longer term results, you would expect the amount of fees paid to rise over time should the ethos be followed.


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