ADBI-OECD Roundtable on Capital Market Reform in Asia Session 4 The views expressed in this presentation are the views of the author and do not necessarily reflect the views or policies of the Asian Development Bank Institute (ADBI), the Asian Development Bank (ADB), its Board of Directors, or the governments they represent. ADBI does not guarantee the accuracy of the data included in this paper and accepts no responsibility for any consequences of their use. Terminology used may not necessarily be consistent with ADB official terms. 14 March 2014 Tokihiko Shimizu Director General Research Department Government Pension Investment Fund (GPIF) Topics 1. Overview of GPIF 2. Why do we invest in infrastructure space? 3. The way we started 4. Our challenges for the future 2 1. Overview of GPIF Managing Japanese national pension reserve funds Safe and efficient investment from long term perspective Risk management by diversifications AUM*1 : USD 1.3 trillion (JPY129 trillion) Asset Allocation Domestic fixed income Domestic equity Foreign fixed income Foreign equity Short term asset To be revised in every 5 years target*2 60% 12% 11% 12% 5% actual*1 55.22% 17.22% 10.60% 15.18% 1.77% Based on actuarial valuation by Ministry of Health, Labour and Welfare Next review will be scheduled by April 2015, or earlier if needed *1 as of 31st December, 2013 *2 Review of medium term plan as of June, 2013 3 1. Overview of GPIF Actuarial valuation is under process Risk Tolerance probability which bond investment return underperforms against nominal wage growth Target Return nominal wage growth rate + α More diversified portfolio based on the forward looking analysis from domestic bond oriented investment strategy 4 2. Why do we invest in infrastructure space? Feasibility study on alternative assets (October 2012 - March 2013) Benefit of liquidity premium / portfolio diversification Unit trust or discretionary account as possible options under current regime Suggested liaising with experienced institutional investors for their capabilities and expertise Discussions by GPIF investment committee since 2012 5 On the other hand Review investment strategies of public funds Reported by Government Panel on 20 November 2013 Review Portfolio, Strategic Asset Allocation Further diversification i.e. PE, Infrastructure, Real Estate, etc. Set up “Baby Funds” Enhance governance structure and risk management Portfolio construction based on “forward looking” risk analysis “Economic measures” Reported by Cabinet Office on 5 December, 2013 Expansion of the scope of GPIF administration “Recommendations for revitalizing Financial and Capital Markets” Reported by Government Panel / MoF / FSA on 13 December, 2013 GPIF needs to diversify investment strategies Possible joint investment with overseas pension funds and DBJ 6 2. The way we started Started infrastructure investment Program Announced on 28 February, 2014 Co-investment with like minded investors DBJ/ OMERS to start with (non-exclusive) Up to USD2.7 billion over 5 years (0.2% of AUM) Expected Benefit Cash flow profiles Diversification with low correlation to public market Build knowledge and skill set though co-investment investment Seek other potential partners for co-investments including PE and Real Estate 7 3. Our challenges for the future Asset allocation comparison Investor name Country AUM (US$ billion) Alternative investment % CPPIB Canada 190 48% GPF-Global Norway 831 1% CalPERS United States 284 23% ABP Germany 413 25% NPS South Korea 351 9% GPIF Japan 1,223 ? Source : respective website Currency :as of 2013/12/31 as of 2013/06/30 as of 2013/12 :CPPIB , GPF-Global, CalPERS, ABP, GPIF as of 2013/6 :NPS 1CAD=0.941USD 1NOK=0.165USD 1EUR=1.378USD 1USD=105.105JPY 1KRW=0.00087USD 1USD=99.335JPY 8 3. Our challenges for the future Trust based pension system Political/regulatory stability/visibility, less investment restriction ⇒Pension funds can allocate certain amount of capital to infrastructure investments PPP market is widely accepted Matured bond market DB system with widely underfunded Active privatization Strong investors’ appetite DC system Direct investing Model (GLP) Outsource Model with open-ended funds Need a number of internal resources Governance and fee issues for better control / lower cost Source: Inderst G., Della Croce, R., (2013), “Pension Fund Investment in Infrastructure: A Comparison between Australia and Canada”, OECD Working Papers on Finance, Insurance and Private Pensions, No.32, OECD Publishing. 9 3. Our challenges for the future Possible approach for further exposure to alternatives Gatekeepers or FoF / Separate Accounts Single funds Co-investment with funds Direct investment Syndication / Club deals Within regulatory framework Every option is open Combination of different options 10 APPPENDIX – JAPAN INFRASTRUCTURE LANDSCAPE Status Historically owned / managed by public sector Opportunities for privatization / maintenance(PPI) Matured bond and loan market Public sector is open to sell concessions Sendai Airport Kansai International Airport 11
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