GPIF
ANNUAL REPORTFISCAL YEAR 2015

GOVERNMENT PENSION INVESTMENT FUND

Investment Principles

1

Our overarching goal should be to achieve the investment returns
required for the public pension system with minimal risks,solely for the benefit of pension recipients from a long-term perspective,
thereby contributing to the stability of the system.

Our primary investment strategy should be diversification2

by asset class, region, and timeframe.
While acknowledging fluctuations of market prices in the short term,
we shall achieve investment returns in a more stable and efficient mannerby taking full advantage of our long-term investment horizon.
At the same time we shall secure sufficient liquidity to pay pension benefits.

We formulate the policy asset mix and manage

3and control risks at the levels of the overall asset portfolio,each asset class, and each investment manager.
We employ both passive and active investments to attainbenchmark returns (i.e., average market returns) set for each asset class,while seeking untapped profitable investment opportunities.

4

1

By fulfiling our stewardship responsibilities,
we shall continue to maximize medium- to long-term equity
investment returns for the benefit of pension recipients.

Code of Conduct【１】Social responsibility◆ The GPIF’s mission is to contribute to the stability of the public pension system (Employees’
Pension Insurance and National Pensions) by managing the reserve assets and distributing theproceeds to the government.

【2】Fiduciary duty
◆ We fully understand that the reserve assets are instrumental for future pension benefits payments,
act solely for the benefit of pension recipients, and pledge to pay due attention as prudent experts
in exercising our fiduciary responsibilities. The Committee members of the Investment Advisory
Committee shall by no means be motivated by benefitting the organizations to which they belong.

【3】Compliance with laws and maintaining highest professional ethics and integrity◆ We shall comply with laws and social norms, remain fully cognizant of our social responsibilities
associated with pension reserve management, and act with the highest professional ethics andintegrity to avoid any distrust or suspicion of the public.

【4】Duty of confidentiality and protecting the GPIF’s asset◆ We shall strictly control confidential information that we come to access through our businesses,
such as non-public information related to investment policies and investment activities, and neveruse such information privately or illegally.
◆ We shall effectively use the GPIF’s assets, both tangible and intangible (e.g., documents,
proprietary information, system, and know-how), and protect and manage such assets properly.

【5】Prohibition of pursuing interests other than those of GPIF
◆ We shall never use our occupations or positions for the interests of ourselves, relatives, or third
parties.
◆ We shall never seek undue profits at the expense of the GPIF.

【6】Fairness of business transactions◆ We shall respect fair business practices at home and abroad, and treat all counterparties impartially.
◆ We shall never make transactions with anti-social forces or bodies.

【7】Improving information disclosure◆ We shall continue to improve our public information disclosure and public relations activities.
◆ We shall ensure the accuracy and appropriateness of our financial statements and other public
documents that are required to be disclosed by laws and ordinances.
◆ We shall remain mindful that our outside activities, regardless of whether business or private (e.g.,
publications, speeches, interviews, or use of social media) affect the credibility of the GPIF, and act
accordingly.

【8】Developing human resources and respect in the workplace◆ We are committed to the GPIF’s mission by improving our professional skills and expertise,promoting communication and teamwork and nurturing a diversity of talents and capabilities.
◆ We shall respect each person’s personality, talents and capabilities, perspectives, well-being, andprivacy to maintain a good work environment, and never allow discrimination or harassment.

【9】Self-surveillance of illegal or inappropriate activity◆ Whenever an illegal or inappropriate activity is (or is expected to be) perpetrated by Committee
members, executives, staff, or other related personnel, such activity shall be immediately
reported to the GPIF through various channels including our whistleblowing system.
◆ When such a report is made, we shall conduct the necessary investigation and take corrective
actions and preventive measures according to our internal rules.

2

3

Table of Contents

C
h
a
p
t
e
r

Message from President

5

Overview of Fiscal Year 2015

71

Chapter 1
Investment Result in fiscal year 2015
1 Overall Assets

9

2 Investment in Bonds

16

3 Investment in Equities

18

4 Major Initiatives

23

C
h
a
p
t
e
r

2

Chapter 2
Overview of the Government Pension Investment Fund
1 Medium-term Objectives and Medium-term Plan

29

2 Investment Principles and Code of Conduct

33

3 Organization and Internal Control System

38

4 Investment Advisory Committee

40▶ Investment results of the Government Pension Investment Fund, including this annual report,
is available on the Fund’s website (http://www.gpif.go.jp/en).
▶Please contact with the Fund’s Planning and Communication Department (tel. +81-3-3502-2486)
prior to reproduction or reuse (except quotation) of the content of this annual report forcommercial purposes.
Please clearly cite the source when quoting, reproducing, or reusing any content of this report.

4

5

Message from President
The mandate of the Government Pension Investment Fund is to contribute to the stabilityof the schemes of Employees’ Pension Insurance and National Pension by managing andinvesting the reserve funds entrusted by the Minister of Health, Labour and Welfare and by
distributing the investment return to the Pension Special Account.
The investment return in Fiscal Year 2015 was negative for the first time in five years, due
to the effects of weak global equity markets and the appreciation of the yen.
In October 2014, we revised our policy asset mix to a more diversified one, to achieve theinvestment return required for the public pension scheme with minimal risk from along-term perspective considering that Japan is about to transform itself from an economyof persistent deflation. Fiscal Year 2015 saw substantial variations in the fund’s value sincemarkets became volatile after the slowdown of Chinese economy.
We are enhancing our risk management structures in accordance with diversification of
investment methods, and we are working to develop human resources with high levels of
expertise. We constantly monitor market movement, analyze its effect from long-term andmultifaceted perspectives and take appropriate action as a fiduciary to retain sufficient
reserve for the future generation. While our policy asset mix is more susceptible toshort-term market fluctuation than before, the current policy asset mix – in the long run –lessens the risk that the reserve funds fail to reach the necessary level for the pension
system.
We will be further accountable to the public and make our investment policy more
understood. I hope you like to read this annual report in Fiscal Year 2015 having moregraphs and analyses, and you see further transparency.
We pledge to continue, through exercising fiduciary responsibilities for the reserve funds,
fulfiling our mission of contributing to the stability of the public pension schemes and thestability of the lives of Japanese nationals, as we aim to be an organization worthy of the
public’s trust. I would sincerely appreciate your continued understanding and support.

Pr e si de n t
Norihiro Takahashi
Government Pension Investment Fund, Japan

6

Overview of Fiscal Year 2015
Investment results
Fiscal Year 2015

Since Fiscal Year 2001

- 3.81 %+［annual rate］

Rate of return

Returns

2.70 %［annual rate］- ¥5.3 trillion +¥45.4 trillion［annual returns］［cumulative returns］¥134.7 trillion［as of end of fiscal 2015］

Asset size

Since returns are marked to market as of the end of fiscal 2015, they include unrealized gains and losses,
and they are exposed to short-term market movements.

Cumulative returns since Fiscal 2001
¥100 million

600,000+507,338
500,000+ 454,239

400,000+354,415
300,000+252,209+173,703

200,000+134,258+118,525

100,000+44,638+18,5110‒5,874‒100,000

7+139,986+116,893 +113,894+25,043‒30,405

FY 2001 FY 2002 FY 2003 FY 2004 FY 2005 FY 2006 FY 2007 FY 2008 FY 2009 FY 2010 FY 2011 FY 2012 FY 2013 FY 2014 FY 2015

Foreword: Overview of Fiscal 2015

Contribution to the public pension system
Real return on investment(cumulative)

2.60 %［annual rate］

Target return assumed by the MHLW

0.23 %
0.19 %［annual rate］

Reference Case［annual rate］

Economic Revitalization Case

The GPIF’s investment target is to secure a long-term real return on investment (return on investment minus
rate of increase in nominal wages) of 1.7% with the minimal level of risk, under the Medium-term Planestablished by the Minister of Health, Labour and Welfare (MHLW).

(%)

Real return on investment (cumulative)
since fiscal 2001

60

50

2.60 %［annual rate］

40(FY2001-2015)30

GPIF investment results
20

10

0

Target return assumed by MHLW

Reference Case

0.23 %
0.19 %［annual rate］

Economic Revitalization Case-10［annual rate］(FY2001-2015)-20
FY 2001 FY 2002 FY 2003 FY 2004 FY 2005 FY 2006 FY 2007 FY 2008 FY 2009 FY 2010 FY 2011 FY 2012 FY 2013 FY 2014 FY 2015
Note: Real return on investment (%) is calculated as (1 + nominal return on investment [%]) / (1 + nominal increase in wages [%]) - 1.

8

Chapter

1 Investment Result in fiscal year 2015

1 Overall Assets［1］Investment results① Rate of investment return
8.0%

The result for Fiscal Year 2015 isQuarterly
Cumulative

6.0%– 3.81 %

4.0%

3.56%

1.92%

2.0%
0.0%

–3.78%–2.0%–0.37%–4.0%

due to negative returns on domestic equities andforeign bonds and equities.

–6.0%–3.81%–5.59%–8.0%

Q1 end–3.52%

Q2 endQ3 endQ4 end

10.0%

Total
Domesticbonds
Domestic
equities
Foreignbonds
Foreignequities
FILP
bonds

1ｓ
ｔQ

2ndQ

3rdQ

4thQ

Total

1.92%

–5.59%

3.56%–3.52%–3.81%–0.10%

0.60%

0.75%

2.78%

4.07%

0.0%

5.89% –12.78%

9.92% –12.14% –10.80%

–5.0%

0.65%

–1.26%–1.10%–1.64%–3.32%

2.38% –10.97%

5.28%–5.83%–9.63%

0.42%

0.45%

0.45%

1.75%

0.43%

4.07%

5.0%

0.05%
–3.32%–10.0%

Domestic Domestic
bonds
equities–3.81%–9.63%–10.80%–15.0%

1.75%

Foreignbonds

Foreignequities

Short-term
assets

FILP
bonds

Total

(Note 1) Fiscal 2015 is the year ended March 31, 2016.
(Note 2) The GPIF’s portfolio consists of funds invested in the markets (hereinafter “market investment” which is marked to market) and FILP bonds (See Note 4), which areheld to maturity and valued at amortized costs.
(Note 3) In this annual report, return figures are the average of returns of market investment and FILP bonds weighted with investment principal, and are gross of fees. The
rate of return on each asset class other than FILP bonds is time–weighted.
(Note 4) The FILP bonds are government bonds issued to finance Fiscal Investment and Loan Program (FILP).

② Amount of investment returns¥100 million
100,000

The result for Fiscal Year 2015 is

50,000–¥5,309.8 billion
due to losses on domestic
foreign bonds and equities.

equities

and

Total
Domesticbonds
Domestic
equities
Foreignbonds
Foreignequities
Short–term
assets
FILP
bonds

2ndQ

3rdQ

26,489 –78,899
–505

3,022

13,792

20,094

1,139–2,1796,987 –36,552–3,153–5,108–53,098–78,899
Q1 endQ2 endQ3 endQ4 end¥100 million
50,00029,660 –40,058 –34,895–6,60020,0947

0748–6,600–50,000–32,451–34,895–53,098

15,854 –18,741 –32,451

1

2

2

1

7

208

191

180

169

748

(Note) Investment returns are gross of fees.

9

Total

18,657 –43,154–2,408–52,41047,302 –47,990 –53,098
3,785–47,990–50,000–150,000

4thQ

47,3020–100,000(Unit: ¥100 million)

1ｓｔQ

26,489Quarterly
Cumulative–100,000

Domestic Domestic
bonds
equities

Foreignbonds

Foreign Short-term
equities
assets

FILP
bonds

Total

Review of management and investment in fiscal 2015 ｜ 1 Overall Assets③ Cumulative returns and asset size since fiscal year 2001

Chapter1

Cumulative returns from fiscal 2001 to fiscal 2015 are+ ¥45,423.9 billion
and the value of investment assets at the end of fiscal 2015 is¥134,747.5 billion¥100 million

C um ulativ e return

600,000+507,338
500,000+454,239

400,000+354,415

300,000+252,209+173,703

200,000+134,258+116,893 +113,894+118,525

100,000+44,638+18,511+25,043

0–5,874–100,000

FY2001+139,986–30,405
FY2002

FY2003

FY2004

FY2005

FY2006

FY2007

FY2008FY2009FY2010FY2011FY2012FY2013

FY2014FY2015A sset size¥100 million

1,600,000
Market investments

1,400,000

1,374,769

FILP bonds

1,145,278

1,200,000

1,198,868 1,176,286

1,228,425

FY2007

FY20091,163,170 1,136,112

1,204,653

1,265,771

1,347,475

1,028,714

1,000,000

872,278

800,000

703,411600,000
400,000

502,143
386,014200,000
0

FY2001

FY2002

FY2003

FY2004

FY2005

FY2006

FY2008FY2010FY2011FY2012FY2013

FY2014FY2015(Note) The balance of FILP bonds increased from fiscal 2001 through fiscal 2007 due to increased underwriting and decreased since then due to redemption on
maturity.

10

Review of management and investment in fiscal 2015 ｜ 1 Overall Assets④ Comparison to the investment return target assumed in the MHLW’s actuarial valuation

The average real investment return* isand is2.85 %

2.60 %

for fifteen years since fiscal 2001

for ten years since we were established as an independent administrative

agency in 2006.

These returns are higher than the real investment return target assumed in the MHLW’s
actuarial valuation.
* The real investment return is nominal investment return less wage inflation since public pension benefits are indexed to the wage until retirement and to the CPI afterwards.

GPIF’s investment performance
FY2001

Performance

Nominal investment return（After deducting interest on debts,
investment management fees, etc.）(%)

FY2002

FY2003

FY2004

FY2005–4.01 –6.69

7.61

2.91

9.57

FY2006

FY2007

FY20083.52 –4.69 –7.61

FY2009FY20107.88 –0.27

Nominal rate of increasein wages–0.27 –1.15 –0.27 –0.20 –0.17

0.01 –0.07 –0.26 –4.06

Real investment return–3.75 –5.61

3.51 –4.63 –7.37 12.44 –0.95

7.90

3.11

9.76

FY2011FY20122.29 10.21

FY2013

FY2014FY2015

Last 10 years Last 15 years（annualized）（annualized）

8.62 12.24 –3.84

2.63

2.31

0.21

0.13

0.50

–0.22

–0.28

2.51

9.98

8.48 11.14 –4.31

2.85

2.60

0.68 –0.21

0.99

Yields used in
actuarial valuation

Investment return target assumed in the MHLW’s actuarial valuation

11

Nominal investment return(%)

FY2001

FY2002

FY2003

FY2004

FY2005

FY2006

FY2007

FY2008FY2009FY2010FY2011FY2012FY2013

4.00

4.00

0.80

0.90

1.60

2.30

2.60

3.00

1.47

1.78

1.92

2.03

2.23

3.41

2.66

2.81

2.60

Nominal rate of increasein wages

2.50

2.50

0.00

0.60

1.30

2.00

2.30

2.70

0.05

Real investment return

1.46

1.46

0.80

0.30

0.30

0.29

0.29

0.29

1.42 –1.58 –0.72 –0.76 –0.36

FY2014FY2015

1.88
1.61
2.47
1.00
1.63
–0.59
0.34
–0.02

1.34

Last 10 years Last 15 years（annualized）（annualized）

2.05
2.03
2.20
2.11
–0.14
–0.08

2.12
2.10
1.92
1.87
0.19
0.23

Review of management and investment in fiscal 2015 ｜ 1 Overall Assets⑤ Investment assets and portfolio allocation(Consolidated with GPIF and the Pension Special Account)
Chapter1

Inside： policy asset mix
outside：ﬁscal 2015

Domestic
equities

Domestic
bonds

37 . 55 %

25 %

35 %

( ± 9%)( ± 10 % )

25 %

15
%
±
(

21.75%( ± 8%)

Foreignequities

4%)

22.09%
Foreignbonds

Short-term assets

13.47%

5.14%

Market value（¥billion）

Allocation of
Policy asset mix
reserve funds（A）（B）

Deviation（A–B）

Domestic bonds

52,801.0

37.55%

35%（±10%）＋2.55%

Market investments

49,358.8−−−（Book value）
FILP
bonds
（Market value）

3,442.2−−−（3,598.0）−−−

Domestic equities

30,580.9

21.75%

25%（±9%）−3.25%

Foreign bonds

18,938.8

13.47%

15%（±4%）−1.53%

Foreign equities

31,071.4

22.09%

25%（±8%）−2.91%

Short–term assets

7,235.1

5.14%

140,627.1

100.00%

Total

−
100%

−
−

(Note 1) The figures above are rounded, so the sums do not necessarily match the total number.
(Note 2) The amounts in the Market value column take account of accrued income and accrued expenses.
(Note 3) Book values of FILP bonds are book values by the amortized cost method plus accrued income.
(Note 4) While Reserve Funds as a whole include reserves managed under a special account as of the end of fiscal 2015,this amount is prior toadjustment for revenues and expenditures and differs from the amount in final settlement of accounts.
(Note 5) Policy Asset Mix: Domestic bonds 35% (±10%), Domestic equities 25% (±9%), Foreign bonds 15% (±4%), Foreign equities 25% (±8%).
The percentage of alternative investments is 0.06% (within a maximum of 5% of total portfolio).
(Note 6) The notes above apply to the following pages as well.

The allocation changes of each asset class as a result of rebalancing, during fiscal 2015(¥billion)

Domestic bonds Domestic equities Foreign bonds Foreign equities
Allocated/withdrawn−5,986.9+2,400.0+1,421.3+4,242.4(Note 1) Each number shows the net rebalancing amount.
(Note 2) Redemptions and coupon revenue of the Special Fund for cash
outflow were ¥3.584 trillion. Redemptions and coupon revenueof the Special Fund for FLIP bonds were ¥1.6447 trillion.

12

Review of management and investment in fiscal 2015 ｜ 1 Overall Assets⑥ Factor analysis of difference from compound benchmark return
The total rate of returnon all investment assets

The compoundbenchmark rate of return

Excess return rate

–3.81% –3.81%

0.00%

The GPIF breaks down difference between the total rate of return on all investment assets and the compound benchmark rateof return, into the following three factors to ascertain which factors contribute to the deviation.
(i) Asset allocation factor : Factor resulting from differences between the policy asset mix used as the basis for calculating thecompound benchmark and the actual asset mix.
(ii) Individual asset factor : Factor resulting from differences between the actual rate of return on each asset and the corresponding
benchmark rate of return.
(iii) Other factors(including error): Factors involving both the asset allocation and individual asset factors and calculation errors*(Note) Calculation errors arise from differences in the methods of calculating the rates of return on invested assets as a whole and on the compound benchmark.

The rate of return on all investment assets was –3.81%, vs. acompound benchmark of a –3.81% return, with a deviationfrom the benchmark of 0.00 percentage points.
The following asset allocation factor contributed to a positive
deviation: the fact that domestic bonds, which had higher
benchmark returns than the compound benchmark, wereRate of return
Return of GPIF

13

overweighted on average vs. the policy asset mix.
As for the individual asset factors, the rates of return on
domestic and foreign bonds were –0.07% and –0.09%,
respectively, which resulted in overall rate of return was–0.15%.

Factor analysis of excess rate of return

Benchmark return Excess rate of Asset allocation Individual asset Other factors
（1）
+
（2）
+
（3）
（3）
on each asset
returnfactor（1）factor（2） （including error）

Total−3.81%−3.81%

0.00%

0.21%

−0.15%−0.06%

0.00%

Domesticbonds
Domestic
equities
Foreignbonds
Foreignequities
Short–term
assets

3.92%

4.13%

−0.21%

0.11%−0.07%−0.01%

0.03%−10.80%−10.82%

0.02%

0.05%

0.01%

−0.00%

0.05%−3.32%−2.74%−0.58%−0.04%−0.09%

0.01%−0.12%−9.63%−9.66%

0.03%

0.02%

0.01%

−0.00%

0.03%

0.05%

0.05%

0.00%

0.07%

0.00%

0.00%

0.07%

Review of management and investment in fiscal 2015 ｜ 1 Overall Assets⑦ Fees and expenses¥9.2 billion from the previous year to¥38.3 billion
0.03%

Chapter1

In fiscal 2015, total fees rose by

The average rate of the total fees against

the investment balance for fiscal 2015 was

0.10

45
40
35

30.9

25.8

24.6

25

0.03%

0.02%

15

0.08

29.1

28.8

0.03%

0.09

Average fee rate against investment assets (%, right scale)

34.3

30

20

38.3

Management and custodian fees (¥ billion, left scale)

0.02%

23.1

0.02%

0.07

25.3

0.06

22.2

0.02%

0.02%

0.05

0.02%

0.04

0.03%

0.02%

0.03

10

0.02

5

0.01

0

FY2006

FY2007

FY2008FY2009FY2010FY2011FY2012FY2013

FY2014

Total

0.00

FY2015

Fees by asset class(¥100 million)

FY2006

FY2007

FY2008FY2009FY2010FY2011FY2012FY2013

FY2014FY2015

309

343

288

258

246

231

222

253

291

383

Domestic bonds

85

102

100

71

67

64

47

36

38

38

Domestic equities

98

96

70

66

65

62

59

78

57

83

Foreign bonds

49

63

61

60

56

52

57

68

85

91

Foreign equities

77

82

56

61

58

53

60

72

112

170

Average rate of fees against externally managed assets
Total

Average fee rate against investment assets(%, right scale)Management and custodian fees(¥ billion, left scale)M a na g e m ent and c ustodian fees(%)

FY2006

FY2007

FY2008FY2009FY2010FY2011FY2012FY2013

FY2014FY2015

0.03

0.03

0.02

0.02

0.02

0.02

0.02

0.02

0.02

0.03

Domestic bonds

0.03

0.02

0.02

0.01

0.01

0.01

0.01

0.01

0.01

0.02

Domestic equities

0.05

0.06

0.06

0.05

0.05

0.05

0.04

0.04

0.02

0.03

Foreign bonds

0.06

0.07

0.06

0.06

0.06

0.06

0.06

0.05

0.05

0.05

Foreign equities

0.07

0.06

0.06

0.05

0.05

0.04

0.04

0.04

0.05

0.05

Average balance（¥trillion） 107.7

120.2

119.6

123.9

118.1

112.0

111.5

123.9

131.9

139.0

(Note 1) For FILP funds subject to private investment, monthly average balances of book values through the amortized cost method are used.
(Note 2) Management and custodian fees are rounded off to the nearest ¥100 million.

14

Review of management and investment in fiscal 2015 ｜ 1 Overall Assets［2］Risk management① Asset Allocation and Tracking Errors
Changes in asset allocation during fiscal 2015 stayed within the permissible range throughout the fiscal year.
The estimated tracking error of the entire Reserve Funds was stable throughout the fiscal year, with no major changes.

Asset Allocation
D o m e s t i c bo nd s

F oreign b onds

50.0%

20.0%
Upper limit of permissible

39.39%
40.0%

Actual allocation

37.55%

15.00%
12.63%
13.47%

10.0%

35.00%

Policy asset mix

15.0%

30.0%
5.0%

Lower limit of permissible range

20.0%

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

Jan

Feb

0.0%

Mar

Mar

Apr

May

Jun

Domestic equities
40.0%

35.0%

35.0%

Sep

Oct

Nov

Dec

Jan

Feb

25.00%

25.0%

22.00%

20.0%

21.75%

15.0%

10.0%

10.0%

5.0%

5.0%

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

Jan

Feb

25.00%

25.0%

15.0%

0.0%

Mar

20.89%

Mar

Apr

22.09%

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

Jan

Feb

(Note 1) Asset allocation is calculated including reserves managed in the Pension Special Account.
(Note 2) The permissible range of deviation is ± 10% for domestic bonds, ± 9% for domestic equities, ± 4% for foreign bonds, and ± 8% for foreign equities.

Estimated Tracking Error
E s t i m a t e d t rac king error of reserv e funds
3.0%

2.5%

2.0%

1.5%

1.0%

0.5%

0.0%

15

Mar

30.0%

30.0%

0.0%

Aug

F oreign eq uities

40.0%

20.0%

Jul

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

Jan

Feb

Mar

Mar

Review of management and investment in fiscal 2015 ｜ 2 Investment in Bonds

2 Investment in Bonds
Chapter1［1］Domestic bonds① Excess rate of return
The excess rate of return vs. the benchmark(Note) was –0.23%(–1.49% for active investment, and +0.02% for passive
investment). In active investment, security selection in thebonds sector mainly contributed to the negative relative
return. In passive investment, the rate of return largely
corresponded to the benchmark.

② Contribution analysis of excess rate of return
Domestic bonds as a whole produced a negative relative return (–0.23%)
Time–weighted rateof return（1）Benchmark（2）

Excess rate of
return（1）–（2）Fund factors

Benchmark factors

Other factors

4.07%

4.30%
（4.00%）−0.23%（0.07%）−0.23%

0.02%−0.02%

As for fund factors, the rate of return on inflation–linked domestic–bond funds which was lower than the manager’s benchmark
rate of return contributed to the negative rate.
It should be noted that the excess rate of return would be +0.07% if NOMURA J–TIPS index were used as a benchmark index forthe inflation–linked bond portfolio instead of NOMURA BPI government bonds index.

Factor analysis by investment styles
Nomura–BPI/
Nomura–BPI
Nomura–BPI
Nomura–BPI
Inflation–linked
bonds（excluding ABS） government bonds GPIF Customized （excluding ABS）
（active）（passive）（passive）（active）（passive）

Total

Fund factors

0.00%−0.00%

0.01%

0.04%

−0.28%−0.23%

Benchmark factors

0.11%

0.48%

−0.78%

0.14%

0.06%

0.02%

(Note1) Fund factors refer to factors resulting from differences in rates of return between individual funds and managers’ benchmarks. They are calculated taking into
consideration the market total average balance of each fund. The manager’s benchmark for inflation–indexed domestic–bond funds is calculated using Nomura–BPI
government bonds.
(Note 2) Benchmark factors refer to factors resulting from differences in rates of return between managers’ benchmarks and the benchmark (a compound index consistingof Nomura–BPI [excluding ABS], Nomura–BPI government bonds, and Nomura–BPI/GPIF Customized [weighted average according to each asset type’s percentage
of investment amount]). They are calculated taking into consideration the market total average balance of each fund.
(Note 3) Other factors refer to factors such as calculation errors.

16

Review of management and investment in fiscal 2015 ｜ 2 Investment in Bonds［2］Foreign bonds① Excess rate of return
The excess rate of return vs. the benchmark was –0.58% (–0.86% for active investment, and +0.04% for passive investment). In
active investment, the fact that the portfolio was overweight USD bonds mainly contributed to the negative relative return.

② Contribution analysis of excess rate of return
The excess rate of return was –0.45% in the first half of fiscal
2015 due to the temporary inability to follow the benchmark
resulting from a large–scale change in issues accompanying
the restructuring of the manager structure in October 2015
and, in active investment, security selection in USD and EUR

bonds mainly contributed to the negative relative return.
Foreign bonds as a whole produced a negative relative
return (–0.14%) in fiscal 2015.

Time–weighted rateof return（1）Benchmark（2）

Excess rate of
return（1）–（2）Fund factors

Benchmark factors

Other factors−2.72%−2.58%−0.14%−0.03%−0.12%

0.01%

As for benchmark factors, underperformance of Global aggregate, US aggregate and US high–yield relative to the benchmark
index (World Government Bond Index) contributed to the negative relative return.

Factor analysis by investment styles
Total passive Global aggregate U.S aggregate Europe aggregate Inflation–linked U.S. high–yield Europe high–yield Emerging Infrastructure
investment（active）（active）（active）（active）（active）（active）（active） （active）

Total

Fund factors

0.00%−0.01%−0.03%−0.00%

0.00%

0.01%

−0.00%−0.00%

0.00%−0.03%

Benchmark factors

0.01%−0.06%−0.04%

0.01%−0.01%−0.04%

0.00%

0.00%

0.00%

−0.12%(Note 1) Fund factors refer to factors resulting from differences in rates of return between individual funds and managers’ benchmarks. They are calculated taking into
consideration the market total average balance of each fund.
(Note 2) Benchmark factors refer to factors resulting from differences in rates of return between managers’ benchmarks and the benchmark (through September 2015, a
compound index consisting of the Citigroup World Government Bond Index and the World Broad Investment–Grade Bond Index [hereinafter this refers to the index
not including Japanese yen, no hedging, JPY–based] [weighted average according to each asset type’s percentage of investment amount, using the Citigroup World
Government Bond Index for passive investment and the World Broad Investment–Grade Bond Index for active investment]; since October 2015, the Citigroup World
Government Bond Index). They are calculated taking into consideration the market total average balance of each fund.
(Note 3) Other factors refer to factors such as calculation errors.

17

Review of management and investment in fiscal 2015 ｜ 3 Investment in Equities

3 Investment in Equities
Chapter1［1］Domestic equities① Excess rate of return
The excess rate of return over the benchmark was 0.02%(0.92% in active investment and minus 0.13% in passive
investment). In active investment, security selection in theinformation technology and telecommunications sector aswell as the electrics sector contributed to the positive relative
return. In passive investment, JPX Nikkei 400 and MSCIJapan Standard investments contributed to the negative
relative return.

② Contribution analysis of Excess rate of return
The overall return on the fund’s domestic equity investments was 0.02% higher than the return on the benchmark index.
Time–weighted rateof return（1）Benchmark（2）−10.80%−10.82%

Excess rate ofFund factors
return（1）–（2）0.02%−0.02%

Benchmarkfactors

Other factors

0.05%−0.02%

As for the benchmark factor, outperformance of S&P GIVI Japan against the benchmark index (TOPIX) contributed to the positive
relative return.

Factor analysis by investment styles
TOPIX（active）

RUSSELL/NOMURA RUSSELL/NOMURA
Large Cap Value
Small Cap（active）（active）

Nomura RAFI
（active）

MSCI Japan
Small（active）

S&P GIVI
Japan（active）

Fund factor

0.02%−0.03%

0.02%−0.01%−0.00%

0.01%

Benchmark factor

0.00%−0.06%

0.02%

0.04%

0.03%

0.11%

TOPIX
（passive）

JPX Nikkei 400（passive）

MSCI Japan
Standard（passive）

RUSSELL/NOMURA
Prime（passive）

Total

Fund factor−0.00%−0.01%−0.00%−0.00%−0.02%

Benchmark factor

0.00%−0.03%−0.06%

0.00%

0.05%

(Note 1) The fund factor is a factor of difference between individual fund return rate and manager benchmark return rate, which is calculated based on an average total
market value of each fund.
(Note 2) The benchmark factor is a factor of difference between manager benchmark return rate and benchmark return rate (TOPIX dividends included) which is calculated
based on an average total market value of each fund.
(Note 3) Other factors are factors of calculation differences, etc.

18

Review of management and investment in fiscal 2015 ｜ 3 Investment in Equities［2］Foreign equities① Excess rate of return
The excess rate of return against the benchmark was+0.03% (+0.09% in active investment and +0.04% in passive
investment). With regard to active investment, holdings
in developed markets generated a similar return to thebenchmark index, and in emerging markets, the security
selection of banks, consumer services, and the food, drink,and tobacco sectors contributed to a positive relative return.

② Contribution analysis of Excess rate of return
The overall return on the fund’s foreign equity investments was 0.03% higher than the return on the benchmark index.
Time–weighted rateof return（1）Benchmark（2）

Excess rate of
return（1）–（2）Fund factors

Benchmark factors

Other factors−9.63%−9.66%

0.03%

0.03%

0.01%

−0.01%

As for the fund factors, outperformance of total passive investment and emerging against the manager’s benchmark rate of
return contributed to the positive relative return.

Factor analysis by investment styles
Total passive
investment

Developed（active）

Emerging（active）

Private Equity（active）

Total

Fund factors

0.03%−0.03%

0.03%−0.00%

0.03%

Benchmark factors−0.05%

0.11%−0.05%

0.00%

0.01%

(Note 1) Fund factors refer to factors resulting from differences in rates of return between individual funds and managers’ benchmarks. They are calculated taking into
consideration the market total average balance of each fund.
(Note 2) Benchmark factors refer to factors resulting from differences in rates of return between managers’ benchmarks and the benchmark (a compound index consisting of
MSCI KOKUSAI [JPY basis, incl. dividends, after taking into account our dividend tax factors], MSCI EMERGING MARKETS [JPY basis, incl. dividends, after deducting
taxes], MSCI ACWI [not incl. JPY, JPY basis, incl. dividends, after taking into account our dividend tax factors]). They are calculated taking into consideration themarket total average balance of each fund.
(Note 3) Other factors refer to factors such as calculation errors.

［3］Fulfiling stewardship responsibilities and exercise of voting rights① Fulfiling stewardship responsibilities
A. Policy for fulfiling stewardship responsibilities
To implement Japan’s Stewardship Code (the Code), theGPIF has formulated its Policy for Fulfiling StewardshipResponsibilities and published it on May 30, 2014. The Policy
is outlined below.
The GPIF will conduct hearings when selecting the external
asset managers and at the time of its annual comprehensive
evaluation, and will ask for explanations on and gain anunderstanding of the status of implementation of the Code.
The GPIF will also publicize the overview of the status of
implementation annually. If, as a result of the hearings,
the GPIF recognizes that a problem has occurred for acertain external asset managers in fulfiling its stewardship

19

responsibilities, the GPIF will demand that said external asset
managers remedy the relevant situation.
As the manner in which to fulfil stewardship responsibilities
is considered to vary from one external asset managers toanother depending on the investment style commissioned,
the GPIF will articulate its own way of thinking to each external
asset manager for each investment style. When evaluating
the external asset managers’ engagement activities, the GPIF
emphasizes the content of dialogue rather than superficial
activities (such as the number of meetings held withmanagement).

Review of management and investment in fiscal 2015 ｜ 3 Investment in Equities

Examples of contents of engagement:

Provided all other conditions are equal, the GPIF would more
highly recognize an external asset managers that is deemed
to be better fulfiling stewardship responsibilities.
The GPIF will accumulate knowledge on stewardship
responsibilities by conducting hearings on the status of
exercise by the external asset managers of their stewardship
responsibilities, examine the modality of more appropriate

Chapter1(i)	content of business model that would enhance corporate value (such as management philosophy/vision, specificbusiness strategy)(ii)	status of corporate governance (such as supervision by the board of directors, etc. of business execution)(iii) consideration of long–term capital productivity(iv) response to risk (including risks related to social/environmental problems)(v) prevention of antisocial behavior, etc.
stewardship responsibilities in the process of seeking to
expand the medium–and long–term investment returns forthe beneficiaries, and review its policies as needed. Fromthe perspective of fiduciary responsibility, the GPIF will
examine those activities which would serve to expand long–term returns in the equity market with a view to expanding
medium–and long–term returns for the beneficiaries.

B. Overview of implementation status in fiscal 2015(a) External asset managers’ compliance with the CodeWe requested all the external asset managers of investment
in domestic equities to report about their stewardship
activities, and confirmed that constructive communication
was conducted between the external asset managers andinvestee companies, including implementation of continuous
engagement and enhancement of communication, as well
as issues of their stewardship activities.

(i)	While many engagements are implemented for the purpose of the enhancement of long–term sustainable capital
productivity, its response is polarized.
(ii)	In external asset managers of active investment, “constructive dialogues” aiming at sustainable growth of companies andthe enhancement of corporate values have been taking shape.
(iii)	In external asset managers of passive investment, there is no engagement other than part of active investment.
(iv)	In some external asset managers under some financial institution groups, there were some cases where they failed totake organizational measures against concerns on conflict of interest with the parent company, etc.
(v)	There were some cases of concerns on governance of the external asset managers in their management.

(b) Status of compliance with the Code by the GPIFThe GPIF established “Investment Principles” that stipulate“aim to expand medium–and–long–term returns for the
beneficiaries through various activities in order to fulfil
stewardship responsibilities” and strengthened theirstewardship system by signing the United Nation’s Principles
for Responsible Investment (UN–PRI) in September 2015 andemploying dedicated personnel in stewardship.
Based on the above issues, in the overall evaluation of theexternal asset managers, their governance system andconflict of interest prevention system have been added
as evaluation items from fiscal 2016, and for the external
asset managers of passive investment in domestic equities,
evaluation weight of stewardship activities has been raised.
Furthermore, to evaluate stewardship activities of theexternal asset managers and to grasp the real situation of“constructive dialogues (engagement),” we conducted our
first survey of listed companies and disclosed the results in
April 2016.

20

Review of management and investment in fiscal 2015 ｜ 3 Investment in Equities(c) Establishment of “Stewardship Enhancement Group”
collaboration with domestic and international institutional
investors and UN-PRI besed on global network.

A stewardship expert who GPIF employed in December
2015 established "Stewardship Enhancement Group" inMarch 2016. The Group discusses appropriate stewardship
responsibilities of GPIF and specific action plans from along-term strategic perspective, assesses Stewardship
activities, analyzes ESG factors in investment, and promotes

The Group consists of seven employees as of July 1st 2016
and reinforces itself through further recruitment, etc.

② Exercise of voting rights
A. Concept of exercise of voting rights
The GPIF will also suggest to the external managers that theyshould recognize the importance of corporate governanceand that the voting rights should be exercised to maximize
the long–term interest of shareholders. The GPIF will ask eachexternal asset manager to establish a detailed proxy voting
policy (guideline) and to report the voting results to the GPIF.”

The Medium–term Objectives by the Minister of Health,Labour and Welfare stipulate that the GPIF should pay due
consideration not to unduly exert influence on corporate
management and should take appropriate measures
including exercise of voting rights from the viewpoint of
maximizing the long–term interest of shareholders, whileconsidering influence on corporate management, etc.

In line with the Plan, external managers submit the guideline
for voting and annually report voting results to the GPIF. The
GPIF holds meetings with the managers on the results, and in
the annual evaluation process of each manager by the GPIF,
the way a manager exercises voting rights is considered in
the qualitative part of evaluation.

In this regard, the GPIF in its Medium–term Plan says, “TheGPIF itself does not exercise voting rights and instead
entrusts the external asset managers with the exercise of
voting rights so as not to give rise to a concern that the GPIF
could have a direct influence over corporate management.

B. Exercise of voting rights in the fiscal 2015
In fiscal 2015, we held meetings based on the reports on thevotes cast from April to June 2015 and evaluated the externalmanagers based on the reports and the meetings fromthe viewpoints of “establishing of a guideline for voting,”“organizational framework” and “actual implementation.” As aresult, we confirmed that the voting rights were appropriately
exercised.

(a) Situation of external asset managers of domestic equities (April 2015 to March 2016)
Number of external asset managers who exercised voting rights
29 funds
Number of external asset managers who did not exercise voting rights
none
Proposals pertaining to director
remuneration, etc.

Proposal pertaining to company organization
Proposal

Shareholder proposals

Management proposals

Number of voting
rights exercised
Total

Approved

Opposed

Total

Approved

Opposed

Appointment
of directors

External
directors

Appointmentof auditors

External
auditors

Appointment
Directorof accounting
remuneration
auditors

Director
bonuses

Director
retirement
benefits

Grantingof stock
options

Poison Pills（Rights plan）

Acquisition Mergers,
Dividends of treasury acquisition, the articles ofincorporation
stock
etc.

Warning
type

amendment ofTrust–type

Otherproposals

Total

143,210

34,702

27,183

18,272

132

4,246

2,087

2,086

1,517

12,60072

605

11,703

755

0

117

206,313

142,729

34,513

27,174

18,272

116

4,239

2,087

2,086

1,517

12,522

44

605

9,833

755

0

117

203,824（100.0%）（100.0%）（100.0%）（100.0%）（100.0%）（100.0%）（100.0%）（100.0%）（100.0%）（100.0%）（100.0%）（100.0%）（100.0%）（100.0%）
132,651

29,96823,20914,470

116

4,135

2,023

934

1,230

12,030

44

594

9,493

351

（92.9%） （86.8%） （85.4%） （79.2%）（100.0%） （97.5%） （96.9%） （44.8%） （81.1%） （96.1%）（100.0%） （98.2%） （96.5%） （46.5%）
10,078

4,545

3,965

3,802

（7.1%） （13.2%） （14.6%） （20.8%）
481

189

9

（100.0%）（100.0%）（100.0%）88（1.7%）（4.2%）

473

181

0（0.0%）
9（98.3%） （95.8%）（100.0%）00（0.0%）
16

104（2.5%）
7（0.0%）（100.0%）（100.0%）0（0.0%）
003（0.0%） （42.9%）164（0.0%）（100.0%） （57.1%）

64

1,152

287

（3.1%） （55.2%） （18.9%）0（0.0%）
0（0.0%）
0（0.0%）

0（0.0%）
0（0.0%）
0（0.0%）

0492（3.9%）

0（0.0%）

78

28（0.0%）（100.0%）（100.0%）018（0.0%） （23.1%）
00（0.0%）

60

28（0.0%） （76.9%）（100.0%）(Note 1) If a proposal has multiple items to exercise, the number of exercised items of each proposal is shown.
(Note 2) The figures in parentheses are a percentage to the total number of each proposal.
(Note 3) The negative votes include two abstentions.

21(Unit: No. of proposals, percentage)

Proposals pertaining to capital management Proposals（excluding items pertaining to amendment
pertaining toof the articles of incorporation）

11（1.8%）
0

340

1,870

（0.0%）（100.0%）0（0.0%）
0404（3.5%） （53.5%）

53（2.8%）
1,817（0.0%） （97.2%）0（0.0%）
0（0.0%）
0（0.0%）（0.0%）（100.0%）（100.0%）
0110186,920（0.0%） （94.0%） （91.7%）
0（0.0%）
0（0.0%）
0（0.0%）
0（0.0%）

7（6.0%）
0

16,904（8.3%）
2,489（0.0%）（100.0%）0（0.0%）
082（3.3%）
2,407（0.0%） （96.7%）

Review of management and investment in fiscal 2015 ｜ 3 Investment in Equities(b) Situation of external asset managers of foreign equities (April 2015 to March 2016)
Number of external asset managers who exercised proxies
23 funds
Number of external asset managers who did not exercise proxies
none

Shareholder proposals

Management proposals

Number of voting
rights exercised
Total

Approved

Opposed

Total

Approved

Opposed

Proposals pertaining to capital management（excluding items pertaining to amendmentof the articles of incorporation）

Proposals pertaining to director
remuneration, etc.

Appointment
Appointment Appointment
Directorof accountingof directors of auditors
remuneration
auditors

Director
bonuses

Director
retirement
benefits

Granting ofstock
options

Dividends

Proposals Poison Pills
Other proposals
pertaining toforamendment of
Acquisition
Mergers,
pre–warming Approval
Otherof financialof treasury acquisition, the articles of
proposals
type
incorporation
statement, etc.
stock
etc.

Chapter1

Proposal

Proposal pertaining to company
organization

Total

90,531

4,087

10,373

18,611

418

380

4,505

8,692

4,878

14,556

7,703

333

11,97539,331

216,373

89,0493,711

10,301

18,240

416

372

4,358

8,656

4,878

14,504

7,274

316

11,97535,132

209,182（100.0%） （100.0%） （100.0%） （100.0%） （100.0%） （100.0%） （100.0%） （100.0%） （100.0%） （100.0%） （100.0%） （100.0%） （100.0%） （100.0%） （100.0%）
82,980

3,335

10,124

16,453（93.2%）（89.9%）（98.3%）（90.2%）

6,069（6.8%）
1,482

376（10.1%）
376

177

1,787

（1.7%）（9.8%）

72

371

378
（90.9%）
38（9.1%）
2295（79.3%）
77（20.7%）
8

3,338

8,644

4,552

12,4246,519（76.6%）（99.9%）（93.3%）（85.7%）（89.6%）

1,020（23.4%）
147

12（0.1%）
36（100.0%） （100.0%） （100.0%） （100.0%） （100.0%） （100.0%） （100.0%） （100.0%）
726（49.0%）
756（51.0%）

209（55.6%）
167（44.4%）

45（62.5%）
27（37.5%）

1672（45.0%） （100.0%）
204（55.0%）

0（0.0%）

6（75.0%）
2（25.0%）

54（36.7%）
93（63.3%）

1（2.8%）
35（97.2%）

326

2,080

（6.7%）（14.3%）

052

755（10.4%）
429

217（68.7%）
99（31.3%）
17（0.0%） （100.0%） （100.0%） （100.0%）0（0.0%）

41（78.8%）

0（0.0%）

11（21.2%）

318

17（74.1%） （100.0%）
111（25.9%）

0（0.0%）

11,772

31,379192,410（98.3%）（89.3%）（92.0%）

203

3,753

16,772（1.7%）（10.7%）（8.0%）

4,199

7,191

0

（0.0%） （100.0%） （100.0%）0（0.0%）
0（0.0%）

1,861

3,447

（44.3%）（47.9%）

2,338

3,744

（55.7%）（52.1%）(Note 1) The number of total exercised items excludes non–exercise.
(Note 2) If a proposal has multiple items to exercise, the number of exercised items of each proposal is shown.
(Note 3) The figures in parentheses are a percentage to the total number of each proposal.
(Note 4) The negative votes include 88 abstentions.

22

Review of management and investment in fiscal 2015 ｜ 4 Major Initiatives

4 Major Initiatives［1］Promoting fulfillment of stewardship responsibilities① Signing the United Nation’s Principles for Responsible Investment
The United Nation’s Principles for Responsible Investment(UN–PRI) consists of six principles published in April 2006 by
the United Nations in order to integrate environment, socialand governance (ESG) issues into investment and ownershipdecisions. As of April 2016, more than 1,500 institutions
globally have signed the UN–PRI, which has become theglobal standard for ESG investments.

The GPIF stipulated “fulfil stewardship responsibilities inequity investment” in the Investment Principles establishedin March 2015, and from a viewpoint that appropriate
consideration of ESG in invested companies will help
increase in corporate value and foster sustainable growth ofinvestee companies, signed the UN–PRI in September 2015,as part of fulfiling stewardship responsibilities.

(Reference) GPIF’s policy regarding the UN–PRI
UN–PRIGPIF’s policy

1 We will incorporate ESG issues • The GPIF, whose governing law does not permit direct equity investment, commits
into investment analysis anddecision–making processes.

2 We will be active owners andincorporate ESG issues into ourownership policies and practices.

to ESG issues through external asset managers it employs.
• The GPIF adds ESG issues to evaluation criteria for domestic and international
equity managers and monitors how they properly incorporate ESG issues in their
engagement activities. This new policy is written in “Operating Rules for Investment
Management” and publicized.
• The GPIF revises “Policy for Fulfiling Stewardship Responsibilities” to express thatGPIF incorporate ESG issues in its investment process properly.

3 We will seek appropriate • Through the engagement activities by external asset managers the GPIF
disclosure on ESG issues by theentities in which we invest.

encourages investee companies to explain their ESG policies.

4 We will promote acceptance and • The GPIF asks external asset managers whether they are signatories to the UN–PRI.
implementation of the Principles
within the investment industry.

• The GPIF asks the signatories to report their ESG activities, and also asks the non–signatories to explain their reasons for not signing.

5 We will work together to enhance• The GPIF participates in UN–PRI’s networking activities.

6 We will each report on our• The GPIF will issue its ESG report, which is required of the UN–PRI signatories.
• The GPIF will disclose its ESG activities annually, including the analysis of ESG
activities conducted by the external asset managers it employs.

our effectiveness in implementing
the Principles.
activities and progress towards
implementing the Principles.

Investment Principles
Stewardship
External asset managers’ engagement
activities with investee companies
Considering ESG (environment, social,governance) issues
Signing the UN–PRI

23

Review of management and investment in fiscal 2015 ｜ 4 Major Initiatives② Implementation of survey of investee companies on external asset managers’

stewardship activities

Based on the Japan’s Stewardship Code accepted in
May 2014, the GPIF is supposed to fulfil its stewardship
responsibilities by conducting what it can do as an “asset
owner,” grasping the status of implementation by theexternal asset managers and disclosing the summary of
implementation each fiscal year.
Of these, regarding status of implementation by the external
asset managers in fiscal 2014, we interviewed and asked

Chapter1

A. Background of the survey
them to explain about the implementation of the Code at
the time of annual overall evaluation. In fiscal 2015, in
addition to this interview, we conducted a survey ofinvestee companies to more objectively assess stewardship
activities of the external asset managers and found out
how “constructive dialogues (engagement)” conducted by
the external asset managers with investee companies are
accepted by the investee companies. The survey was sent to
JPX Nikkei Index 400 companies.

B. Summary of the survey
With regard to changes in the external asset managers
after the Japan’s Stewardship Code was introduced,
approximately 60% of companies of the index recognizedchanges. Whether the changes are desirable or undesirable
was divided by six to four in general. As desirable changes,
many companies stated increased questions regarding
business strategy from the medium–and–long–term view and
ESG issues. On the other hand, there were many companies
that pointed out undesirable changes where investors

increased formal/stereo–typed questions and demanded
meetings with top management to create the appearanceof activities. Increased questions about capital policy
and capital efficiency were stated as both desirable andundesirable changes of investors.
When we asked investee companies what they expect frominstitutional investors, many companies stated dialogues andinvestments from medium–and–long–term point of view.

Desirable changes and undesirable changes
Desirable changes of institutional investors (%)

Questions regarding business strategy fromthe long–term point of views are increasing

63.9
36.0

Expectation to institutional investors
Mid-long term point of
view

29.4

Deeper understanding ofcompany’s business

Questions regarding Capital Efficiency/Capital
20.8
policy are increasing

Constant dialogue

Questions regarding ESG issues are increasing

Others13.7

Undesirable changes of institutional investors (%) 36.1
Formal/stereotypical questions are increasing

34.1

Questions regarding capital Efficiency/Capital
31.8
policy are increasing
Request of meetings is increasing

17.0

Others17.0(Note 1) These data are categorized by GPIF based on answers fromcompanies.
(Note 2) Breakdown of “Desirable changes” and “Undesirable changes” isbased on total multiple answers to the same questions.

61.5

36.1

23.8

Discussions andunderstanding of ESG/
non-ﬁnancial issuesof companies

7.8

Others

16.4

4.1

Nothing

0

10

20

30

40

50

60

70

（%）

(Note) Multiple answers, Percentage to the 244 responding companies

24

Review of management and investment in fiscal 2015 ｜ 4 Major Initiatives［2］Asset Manager Registration System① Background
Every four years we have revised our structure of each asset
class managers, based upon the investment performanceof the preceding three years (we also conduct annual
assessment of external managers in a qualitative andquantitative way).
Under this approach, new managers had to wait for
maximum four years to be adopted in our portfolio. We
recognized potential opportunity losses and decided to
introduce the Asset Manager Registration System. For
example innovative strategies including low beta equity,
very selective equity investment and smart beta can be
flexibly adopted and complement traditional strategies inequity investments.

This system will solve the problem of “Backup managers”,
which were selected in the previous manager structures.
Since the number of these managers is limited, there ispossibility that such backup managers are depleted when
existing managers showing insufficient performance were
replaced by backup managers several times.
This is why we aimed to introduce the Asset Manager
Registration System, where new managers can be adopted
anytime. After the Investment Advisory Committee madedeliberation twice, we have started this system from 2016 FY.
Every time new managers of a particular strategy are to
be requested under the System, we will make a priorconsultation to the Investment Advisory Committee andwill update the manager structure periodically.

② Outline of the Asset Manager Registration System
We have started the Asset Manager Registration System
for non–Japanese equities from FY 2016 and will start thesystem for other asset classes in due course. The Registration
System will help us collect information of various investment

strategies, have more flexibility on manager selection, andhave access to new investment idea and expertise of asset
managers.

GPIF
Monthly data

25

Assessment

Flexibly adopt new
asset managers

Evaluation

Daily data

New Manager

New Manager

Screening with advice
given by consultant

Existing Manager

Existing Manager

New Manager

New Manager

Competition

Existing Manager

Existing Manager

New Manager

New Manager

Existing Manager

Existing Manager

Review of management and investment in fiscal 2015 ｜ 4 Major Initiatives［3］Organizational Change
mutually check effectively. Also, we upgraded ouralternative investment section to Private Market Investment
Department in March 2016.

Chapter1

For the purpose of strengthening functions within the
GPIF, risk management function was separated from
Investment Department in January 2015 and became an
independent department as Portfolio Risk Management
Department in May 2015. For the purpose of streamlining
the functions within Investment Department, Investment
Administration Department was created on November 2015,
so that Investment Department can focus more on manager
selection and the front and middle-back functions canFurthermore, in April 2016, we renamed Investment
Department as Public Market Investment Department, underwhich two divisions were created. Public Market Investment
Ⅰ and Ⅱ are responsible for Japanese investments and nonJapanese investments, respectively.

Organization Chart (as of April 1, 2016)
Investment Advisory Committee
General Affairs
General Affairs Department

President

Accounting

Executive Managing Director(Planning and General Affairs)
Executive Managing Director(Management and Investment)
and CIO

Planning and Communication
Chief of staff

Auditor (Full-time)
Auditor (Part-time)

Planning and Communication
Department

Treasury
Research

Portfolio Risk Management
Department

Assistant to
AuditorCompliance Ofﬁcer

Legal Ofﬁcer

IT Administration and Security
Department

Investment Strategy
Department

IT Administration
Information Security
Investment Strategy

Investment Administration
Department

Public Market Investment
Department

Public Market Investment I
Public Market Investment II

Private Market Investment
Department
Internal Fixed Income
Investment Department(Note) Red letters indicate new departments
or roles established after April 2015

Internal Audit Department

26

Review of management and investment in fiscal 2015 ｜ 4 Major Initiatives［4］Diversification of emerging markets equity portfolio(Co-Investment with International Finance Corporation, etc.)

In order to improve sector diversification of our emerging
markets equity portfolio and to capture global economic
growth in a more balanced manner, the GPIF started
private equity investments in emerging markets basedon a co-investment agreement with International FinanceCorporation (IFC) and Development Bank of Japan Inc.

(DBJ). Investments are made through a unit trust, and the
GPIF contributes capital as appropriate new investments
are identified. Cumulative investment amount is expected
to be approximately 400 million US dollars (45 billion yen
equivalent).

① Investment purpose

Sector Weight

The GPIF has been investing in emerging markets equity
to capture the benefit of global economic growth, in active
investment since fiscal 2003 and in passive investment since
fiscal 2014, valued at approximately 3 trillion yen as of theend of fiscal 2015.

3%
3%
7%
6%
7%
18%

However, in emerging countries where listed equity markets
have yet to fully develop and tend to be concentrated incertain sectors such as financials, investment opportunities
in companies in sectors like consumer, with higher growthpotential under favorable demographics and economic
growth, are relatively limited.
We therefore started co-investment with IFC, a member ofthe World Bank Group, who has extensive experience inprivate equity investments in emerging markets, in order toexpand our access to global economic growth, including
consumer-related business, in a more balanced manner.

2%
4%
9%

Others11%

Utilities

7%

Health Care

10%

Industrials
Materials

28%

28%

EnergyConsumer
TMT

28%

22%

Financials

7%

Listed Equities

Private Equities(Note) “Listed Equities” are MSCI Emerging Markets Index, and “Private Equities”
are underlying investee companies in IFC’s private equity funds portfolio,
as of December 31, 2015, respectively.

② Investment scheme
The investments in private equities in emerging markets
are made through a unit trust, and such investment
opportunities are sourced primarily by IFC. More specifically,
the GPIF invests in the unit trust managed by Nissay AssetManagement Corporation, which invests in a fund of funds
operated by IFC Asset Management Company, LLC.
As appropriate investment opportunities are identified,the GPIF contributes capital into the unit trust on an as–need basis. Cumulative investment amount is expected
to be approximately 400 million US dollars (45 billion yen
equivalent), and each underlying investment is anticipatedto be exited via various route including public offeringand strategic sales in around 5 years from respective
initial investment. In our policy asset mix, this investment is
positioned and managed as part of “foreign equities”.

③ Enhanced alternative investments framework
The GPIF conducted a study on alternative investments infiscal 2012, and since then has been employing personnel
with experience in alternative investments including private
equity, which resulted in establishment of a dedicateddivision for alternative investments in investment department
in April 2014, that was upgraded to Private Market Investment
Department in March 2016.
In order to strengthen risk management system, in January

27

2015 investment risk management division was separated
from investment department, and was upgraded to Portfolio
Risk Management Department in May 2015 for a morerobust risk management framework for overall investment
assets including alternative investments.
We are also employing experts in areas of alternative
investments and investment risk management to further
improve our institutional expertise.

Review of management and investment in fiscal 2015 ｜ 4 Major Initiatives［5］Selection of external asset managers
Chapter1① Investment in foreign bonds
diversified investment products. Specifically, we establishedeight categories in active investment (Global Aggregate,
US Aggregate, Europe Aggregate, US High Yield, Europe
High Yield, EM local currency–denominated, EM US dollar–
denominated and Inflation–linked) and selected 21 excellent
funds. We selected six funds for passive investment.

We decided to review the structure of external asset
managers of foreign bonds in fiscal 2014, and in fiscal
2015 we completed to reconstruct the structure of external
asset managers. In the selection, we comprehensively
assessed their investment policies, investment processes,organizations, human resources, and compliance andadministrative operation systems as well as investment fees.

In addition, we introduced performance–based fees for
all funds in active investment and selected some “Backup
Managers” as we did in domestic equity active investment.

In reviewing the structure of external asset managers, topromote diversified investment and raise flexibility, we
widely selected external asset managers of foreign bonds forﬁscal 2015

Advanced countries

Advanced countries

ActiveEmerging countries

With regard to the process of selecting the external asset
managers, we overhauled it on April 1, 2016 and introduced
the Asset Manager Registration System, we started thisUS Aggregate

Inﬂation-linked

US High Yield

Passiveinfrastructure

GlobalAggregate

European High Yield
European Aggregate

EM localcurrency-denominatedCredit strategy

Passive

Interest and currency strategy

ﬁscal 2007

Credit strategy

Interest and currency strategy

Image of change in the structure of external asset managers of foreign bonds

Emerging countries

system for asset managers of foreign equities from April
2016.

② Custodians regarding alternative assets
By reviewing the policy asset mix in fiscal 2014, alternative
investments were permitted. Since they need a specialized

custodian, we started public offering and selected one
organization after screening.

28

Overview of the Government Pension
Chapter 2 Investment Fund
1 Medium–term Objectives and Medium–term Plan
［1］Independent administrative agency system① Objective of independent administrative agency system
The independent administrative agency system is intended
to improve the efficiency and quality of operations by thegovernment of Japan with highly public nature which may
not necessarily be run directly by the government but may
not work properly if outsourced to the private sector, by

establishing independent administrative agencies whose
corporate status is independent from the government andentrusting such operations to them, while securing theirautonomous management and transparency.

② Agency Managed under the Medium–term Objective
Independent administrative agencies are classified into
three types: Agencies Managed under the Medium–term
Objective (AMO), National Research and Development
Agencies, and Agencies Engaged in Administrative
Execution. The GPIF is classified as AMO.
An AMO is intended to manage operations of a public
nature (other than those to be managed by a National
Research and Development Agency) that require a medium–
term perspective, while demonstrating a certain degreeof independence and autonomy in light of such nature.
It is intended to do so based on a plan for achieving theobjectives of its operations as established by the national
government for the medium term, promoting the publicbenefit through providing diverse, high–quality services thatsatisfy the public.
The competent minister (in the case of the GPIF, theMinister of Health, Labour and Welfare) sets objectives tobe achieved by the AMO over a three–to–five–year period(Medium–term Objectives) and instructs such objectives
to the AMO accordingly. The content of the Medium–
term Objectives includes the period for the Medium–term
Objectives, matters concerning improvement of the qualityof services to be provided to the public and other operations,matters concerning improvement of operational efficiency,

29

matters concerning improvement of the agency’s financial
conditions, and other important matters.
Upon receiving such instructions from the minister, theAMO should prepare a plan to achieve its Medium–term
Objectives (Medium–term Plan) and have them approved by
the competent minister. The Medium–term Plan is required
to include measures necessary to achieve objectives for
improvement of the quality of services to be provided to the
public and other operations, measures intended to achieve
the objectives for more efficient operational management,
budgeting (including estimated personnel expenses),revenue and expenditure plans, and funding plans.
The competent minister should seek the opinions of theIncorporated Administrative Agency System Evaluation
Committee under the Ministry of Internal Affairs andCommunications prior to formulation or revision of theMedium–term Objectives and should consult with the
Minister of Finance before approving the formulation orrevision of the Medium–term Objectives or Medium–term
Plan.
The competent minister also should assess the performanceof operations every fiscal year and at the end of every
Medium–term Plan period.

Overview of the Government Pension Investment Fund ｜ 1 Medium–term Objectives and Medium–term Plan

［2］Key Items of the Medium–term Objectives and the Medium–term Plan
① The Medium–term Objectives period
The Medium–term Objectives period at the GPIF is afour–year period from fiscal 2006, the year of the GPIF’s
establishment, through fiscal 2009 for the first period, afive–year period from fiscal 2010 through fiscal 2014 forthe second period, and a five–year period from fiscal 2015
through fiscal 2019 for the third period. The final fiscal yearof each of these periods corresponds to the year of an
actuarial valuation that the government conducts every five
years on the public pension schemes. This reflects the factthat the applicable law stipulates that the GPIF policy asset
mix should be established in consideration of actuarial
valuation and should be described in the Medium–term Plan.

② Operating Rules for Investment Management (ORIM)
perspective solely for the benefit of pension recipients.
To promote disciplined investment management, theObjectives require GPIF to formulate the ORIM. This is basedon the following provisions of the Employees' Pension
Insurance Act and other relevant laws and regulations.

Chapter2

The Medium–term Objectives acknowledge that thereserve funds, part of the premium collected from pension
recipients, are valuable sources of funding for future pension
benefits, and that the purpose of the fund is to contribute to
the future stable management of public pension schemes
through stable and efficient management from a long–term○Article 79–2 of the Employees’ Pension Insurance Act (same philosophy is written in the National Pension Act). . . the reserve funds, a part of the premium collected from the pension recipients, are a valuable source of funding for
future pension benefits, and . . . the purpose of the fund is to contribute to the future stability of management of the
Employees’ Pension Insurance through stable and efficient management from a long–term perspective solely for the
benefit of the recipients of the Employees’ Pension Insurance.

○Article 20, Paragraph 2 of the Act on the Government Pension Investment Fund

. . . the GPIF must consider generally recognized expertise and macro–economic trends, as well as the impact of thereserve funds on the markets and other private sector activities, while avoiding concentration on any particular styleof investment. The GPIF’s investment management should also satisfy the objectives under Article 79–2 of the
Employees’ Pension Insurance Act and Article 75 of the National Pension Act.

In light of these requirements, the Medium–term Planestablishes the policy asset mix from a long–term perspective,
based on the philosophy of diversified investment. Given
the standardization of employees’ pensions from October
2015, the policy asset mix of the third Medium–term Plan
took into consideration the Reference Portfolio establishedjointly by the GPIF, the Federation of National PublicService Personnel Mutual Aid Associations, the Pension
Fund Association for Local Government Officials, and thePromotion and Mutual Aid Corporation for Private Schoolsof Japan.
In addition to the formulation and publication* of the ORIM,
the Medium–term Plan requires the GPIF to review the ORIM
at least once a year and revise them promptly as deemednecessary.
(Note) See the GPIF website (http://www.gpif.go.jp/operation/policy.html) for
details of the operational policies.

③ Investment objectives, risk management, improvements in transparency, etc.
The third Medium–term Objectives as well as the second
Medium–term Objectives, as revised in October 2014,
stipulate that a reserve asset must achieve a long–term real
return of 1.7% (net investment yield on the reserve funds
less the nominal wage growth rate) with minimal risks, while
maintaining liquidity necessary for the pension payout,
based on the actuarial valuation of the pension schemes.

The third Medium–term Objectives also require the GPIF to
make efforts not to hinder market price formation or private–sector investment behavior and to achieve the benchmark
rate of return (market average rate of return) for each asset
class.
Regarding risk management for the reserve funds, the30Overview of the Government Pension Investment Fund ｜ 1 Medium–term Objectives and Medium–term Plan

GPIF maintains the diversified portfolio, and manages andcontrols risks at the levels of the overall asset portfolio, each
asset class, and each investment manager.
The third Medium–term Objectives require the GPIF
to combine passive and active investments, with active
investment to be based on the strong conviction of theexcess return. In equity investment, the GPIF considers
non–financial factors, including environment, social andgovernance (ESG) issues without compromising return.

Furthermore, the Investment Advisory Committee isto oversee new investment methods and/or any new
investment products in an appropriate manner; in theMedium–term Plan the GPIF seeks prior deliberation by
the Investment Advisory Committee before certain matters
including investment policies for new investment methods
and/or new investment products are implemented, and
the GPIF reports to the Committee on the progress of
selection of external investment managers or other mattersas requested by the Committee.

④ Asset allocation (Policy Asset Mix) from a long–term perspective
Under the second Medium–term Objectives, as revisedin October 2014, the policy asset mix, consistent with
the investment objectives, should be further enhanced,
based on the expertise generally recognized for asset
management, macro–economic trends, and a long–term
perspective with forward–looking risk analysis. We define theReference Probability as the probability that the return of an
all–domestic–bond portfolio falls below the nominal wage
growth rate, and examine the probability that the return on
the policy asset falls below the nominal wage growth rate
is lower than the Reference Probability. We also take into
Domesticbonds

Domestic
equities

Foreignbonds

Foreignequities

Targetallocation

35%

25%

15%

25%

Permissible
range ofdeviation

±10%

±9%

±4%

±8%

due consideration the downside risk of equity investment,
evaluate appropriately the probability that the reserve funds
fall below the required level in the actuarial valuation by
the government, and validate the policy asset mix using in–depth, multiple risk scenarios.
With this background, the GPIF established the policy asset
mix shown below through the revised second Medium–term
Plan in October 2014.
The same policy asset mix continues to be stipulated under
the third Medium–term Plan.
(Note1) Alternative investment will be made within maximum 5% of
total portfolio, in accordance with development of dedicatedteam. Infrastructure, private equities, real estates or other assets
determined upon deliberation at the Investment Advisory
Committee, are classified as domestic bonds, domestic equities,
foreign bonds or foreign equities, depending on their risk andreturn profiles.
(Note2) GPIF adopts tactical asset allocation within permissible range ofdeviation for each asset class, and this allocation is solely based
upon thorough analysis on economic and market environment,
and prudent judgment.

⑤ Other important matters to be observed for reserve funds management
The third Medium–term Objectives call for thoroughcompliance with the duty of care and fiduciary duty ofprudent experts.

Responsibilities based on Japan’s Stewardship Code.
However, we do not select individual stocks by ourselves, inconsideration of the impact on corporate management.

When managing the reserve funds, the GPIF is required toconsider the market size, not to be exposed to unfavorable
market impact, and to avoid concentration of timing ofinvestment and/or collection.

It is also stipulated that the GPIF should secure the liquidity
necessary for pension payouts by taking into consideration
the actuarial valuation for the public pension schemes andthe status of revenues and expenditures, and, in orderto enhance the functions necessary for assuring liquidity
without shortage, the GPIF is expected to take appropriate
measures including selling assets smoothly while giving
consideration to market price formation, etc.

The GPIF is required not to unduly exert influence on
corporate management but to take appropriate measures
such as exercise of shareholders’ voting rights for maximizing
long–term returns to shareholders. We fulfil Stewardship31Overview of the Government Pension Investment Fund ｜ 1 Medium–term Objectives and Medium–term Plan

⑥ Enhancement of investment management capabilities,

improvement of operational efficiency

In the Medium–term Objectives, the GPIF is expected toclarify the expertise for the highly skilled professionals
and the area of operations requiring such expertise, whiledeveloping an appropriate environment for attracting suchtalent, implementing a periodical performance evaluation
system, and maintaining human resource in the mostsuitable way. The GPIF is also expected to explain clearly tothe public the appropriateness of the remuneration levelapplied to such highly skilled professionals by referring tocomparable remuneration in private–sector firms.

Chapter2

The GPIF is also expected to develop a comprehensive
portfolio risk management system, including alternative–
investment–specific risk management, with considerationof cost effectiveness. The GPIF will make risk management
more sophisticated by upgrading its forward–looking
risk analysis functions, risk analysis tools, information
accumulation and research capability.

With regard to improvements in operational efficiency,
the Objectives stipulate that the average cost savings during
the Medium–term Objectives period should be at least
1.34% per annum based on the fiscal 2014 level. The cost–saving target includes general administrative expenses(excluding retirement allowances and office relocation
expenses) and operational expenses (excluding expenses
related to computer systems, fees for external asset
managers, personnel expenses for highly skilled
professionals, and expenses related to short–term
borrowing). The new additions and expansions pursuant to
the December 2013 Cabinet Office decision and similar
factors are excluded from the cost–saving target.
However, the additions and expansions are includedin the 1.34% cost–saving target from the following fiscal
year onward. The Objectives also call for continued efforts
to reduce fees for external asset managers, consideringchanges in the respective amounts of invested assets.

32

Overview of the Government Pension Investment Fund ｜ 2 Investment Principles and Code of Conduct

2 Investment Principles and Code of Conduct
In March 2015, the GPIF formulated the Investment
Principles and the Code of Conduct as part of our efforts
to strengthen internal controls, as recommended by theInvestment Advisory Committee. Together with fulfiling
our accountability by making the management structureeven more robust through compliance with the Investment
Principles, we will act with the principle of being a trust–
worthy organization for the public as the foundation of our
day to day activities, faithfully complying with the Code of
Conduct.

［1］Investment principles

[1]

33

Our overarching goal should be to achieve the investment returns required
for the public pension system with minimal risks, solely for the benefit ofpension recipients from a long–term perspective, thereby contributing to
the stability of the system.

Japan’s public pension system (Employees’ Pension
Insurance and National Pension) is fundamentally managed
as a pay–as–you–go system that incorporates the concept ofintergenerational dependency, whereby contributions paidby working generations support older generations.

The GPIF’s mission is to contribute to the stability of thepension system by achieving the investment returns
required for the aforementioned pension system. In otherwords, the most significant risk to the GPIF is a failure toachieve such returns.

In the light of a declining birthrate and an aging population,
funding pension benefits solely with contributions fromworking generations would impose upon them an unduly
excessive burden, so a fiscal plan has been drawn up to
use the reserve assets (GPIF) to fund benefits and achievefiscal equilibrium within about 100 years. After the fiscal
balancing period, the fund is projected to hold reserve
assets equivalent to one year of benefits, and is to be used
for the benefit of later generations.

We shall not pursue higher returns for their own sake. Our
persistent goal is to secure the necessary returns required
for the pension system from a long–term perspective.
The GPIF assigns the highest priority to the benefits ofpension recipients and makes investments upon taking into
consideration the size of the market in which we invest, while
maintaining the value of reserve assets. We shall never use
reserve assets to influence equity markets or to implement
economic policies. We are committed to making investments
solely for the benefit of pension recipients.

Overview of the Government Pension Investment Fund ｜ 2 Investment Principles and Code of Conduct[2]

Our primary investment strategy should be diversification by asset class,region, and timeframe. While acknowledging fluctuations of market prices
in the short term, we shall achieve investment returns in a more stable andefficient manner by taking full advantage of our long–term investment horizon.
At the same time we shall secure sufficient liquidity to pay pension benefits.

《Diversified Investments》

Investing in bonds can generally expect principal
redemptions at full maturity. In particular, domestic bonds
yield yen–based cash required for pension payments torecipients. We also acknowledge that public bonds, which
are generally considered to be safer than equities, can resultin losses when interest rates rise. Should we continue tohold bonds whose nominal returns are lower than the rateof inflation of goods and wages, our reserve assets would
ultimately lose value in real terms.

In general, returns of equity indices such as TOPIX, whichbroadly reflect overall markets, move in line with economic
growth, and higher stable returns can be expected to beearned by investing in equities in the longer term. The basic
principle of equity investment is to invest in those whose
values are expected to rise in the long run. In the short run,however, market prices can often diverge significantly from
intrinsic values for a variety of reasons.

Chapter2

As the western proverb “Don’t put all one’s eggs into one
basket” suggests, it is evident not only from domestic andforeign investment practices but also from financial theories
that investing in a diversified set of assets with different
attributes is appropriate and effective for the safe andefficient management of funds in general. For example,
appropriate investments in multiple diversified assets,e.g., investments in both bonds and equities that possess
different risk/return profiles, would produce less volatility
in returns over the long–term while achieving the same
expected returns. Diversification is thus our primary
investment strategy.

While overseas investments would allow us to enjoy thebenefits of global economic growth, their market prices canbe affected by fluctuations in foreign exchange rates andchanges in the invested country’s political environment.
While acknowledging the market fluctuations mentioned
above, we believe that investing in different asset classes
will contribute to achieving the investment returns required
for the pension system, because: (1) market prices are
expected to converge to their fundamental values over thelong run, and (2) holding a variety of asset classes will bringthe effects of diversification.

《Long–term investment horizon》
In general, the longer the investment horizon, the higher
the returns, in the same sense as time deposits in the longer
term earn higher interest rates than ordinary deposits,
which can be withdrawn at any time. By having a long–term
investment horizon, we can avoid being forced to sell assets
at disadvantageous prices, and hold and wait until market
prices recover.

According to financial projections for the public pension
system, we need not spend down a significant amountof reserve assets for the foreseeable future, which would
enable us to make investments over a relatively long–term. Taking advantage of this feature, we aim to achieve
investment returns in a stable and efficient manner.

《Securing liquidity for pension benefits payments》
The pension reserve managed by the GPIF has theimportant role of immediately providing liquidity to thegovernment’s Pension Special Account (“Account”) if theamount of funds kept in the Account faces a cash shortageand is unable to meet pension benefits payments.

As such, we think it is imperative to pool proceeds from
coupons and redemptions of domestic bonds in advancein accordance with the fiscal projection and to preserve
highly liquid assets to prepare for an unexpected situation
where the Account needs an immediate liquidity injection.

34

Overview of the Government Pension Investment Fund ｜ 2 Investment Principles and Code of Conduct[3]

We formulate the policy asset mix and manage and control risks at the levelsof the overall asset portfolio, each asset class, and each investment manager.
We employ both passive and active investments to attain benchmark
returns (i.e., average market returns) set for each asset class, while seeking
untapped profitable investment opportunities.

《Formulating the policy asset mix》
When investing in the long–term, it is considered to be more
effective and bring about better results to determine thepolicy asset mix and maintain it over a long period, rather
than frequently changing asset allocation in response toshort–term market movements. In this sense, formulating thepolicy asset mix is the most important decision the GPIF has to

make. Hence, a rigorous procedure is established whenever
the Medium–term Plan, including the policy asset mix, iscreated or changed; i.e., with the approval of the Investment
Advisory Committee, the President of the GPIF submits theplan to the Minister of the Health, Labour and Welfare, andthe plan becomes effective, when approved by the Minister.

《Risk control》
The most significant risk for the GPIF is a failure to achieve
the investment returns required for the pension system.
Meanwhile, there are a variety of risks to be controlled inday–to–day investment operations. Such risks include not
only market risk, liquidity risk, credit risk, and country risk
associated with invested assets, but also broader investment
and monitoring processes, such as risks related tooutsourced investment managers, custodians, and the GPIF’s

operations, etc. We identify those risks associated with overall
assets, each asset class, and each investment manager inadvance, and monitor and manage them at regular intervals,
and as necessary. Furthermore, as a long–term investor, westay vigilant to the emergence of new risks that need to becontrolled in accordance with changes in the economic
environment or evolution of investments, and we address
such risks in a flexible and prompt manner.

《Securing benchmark returns (i.e. average market returns)》
In the capital markets, investors use a variety of informationand trade investment assets based on their own motivations.
In particular, assuming an investment horizon that is longenough for information to become widely available andfor many investors to conduct an enormous number oftransactions, market prices are expected to converge to theirintrinsic values, and are neither undervalued nor overvalued.
In this regard, the markets are considered to be efficient ingeneral. This view is compatible with passive investments(i.e., investment strategies in line with indices that parallel
price movements of overall markets), and this style is usefulfor large long–term investors such as the GPIF.

35

On the other hand, the market prices of securities canbe left undervalued or overvalued in cases where public
information is not sufficiently shared among investors,
markets are overreacting to uncertain information, or thenumber of investors is limited. This view is compatible
with active investments (i.e., investment strategies that
deliberately deviate from indices reflecting price movementsof overall markets in pursuit of gaining excess returns) andalternative investments.
The GPIF shall combine passive and active investments,
aiming to secure benchmark returns (i.e., average market
returns) set for each asset class, while seeking untapped
profitable investment opportunities based upon a thoroughexamination of the fundamental sources of such investment
returns.

Overview of the Government Pension Investment Fund ｜ 2 Investment Principles and Code of Conduct[4]

By fulfiling our stewardship responsibilities, we shall continue to maximize
medium– to long–term equity investment returns for the benefit of pension
recipients.

《Stewardship responsibility》
Stewardship responsibility is construed as “the responsibilityof institutional investors to aim to increase medium– tolong–term investment returns for clients or beneficiaries bypromoting enterprise value enhancements and sustainablegrowth of invested companies through constructive
dialogues for purposes (“Engagements”) based on a
deep understanding of invested companies and theiroperational environments.” Aiming to increase medium–to long–term investment returns by promoting enterprisevalue enhancements and sustainable growth is appropriate
for the features of the pension reserve, and is criticallyimportant for the GPIF, which holds significant domestic
equities over the long–term. From this standpoint, we will
fulfil our stewardship responsibilities.
Chapter2《Exercise of voting rights》
The GPIF Act stipulates that we should outsource
investments in equities through external asset managers, towhom we entrust exercise of voting rights. In entrusting suchmanagers, we require them to recognize the importanceof corporate governance, to pledge that the purpose of
proxy voting is to maximize the long–term interests ofshareholders, and to report on their policies and the resultsof proxy voting.

36

Overview of the Government Pension Investment Fund ｜ 2 Investment Principles and Code of Conduct［2］Code of Conduct
As recommended by the Investment Advisory Committee,
the GPIF has established the Code of Conduct of nine items
to be observed by executives, employees, and Investment
Advisory Committee members (social responsibility, fiduciary
duty, compliance with laws and maintaining highest
professional ethics and integrity, duty of confidentiality andprotecting the GPIF’s assets, prohibition of pursuing interests
other than those of GPIF, fairness of business transactions,improving information disclosure, developing humanresources and respect in the workplace, and self-surveillanceof illegal or inappropriate activity). We have also establishedThe status of compliance with the Code of Conduct ismonitored by the Compliance Officer and reported to theInternal Control Committee and the Compliance Committee.
It is reviewed periodically by the Governance Council underthe Investment Advisory Committee. The GovernanceCouncil, if it finds it necessary, may draft amendments to theCode of Conduct and submit such drafts to the Investment
Advisory Committee for deliberation and approval.

Code of Conduct
1. Social responsibility○ The GPIF’s mission is to contribute to the stability of the

public pension system (Employees’ Pension Insuranceand National Pensions) by managing the reserve assets
and distributing the proceeds to the government.

2. Fiduciary duty

○ We fully understand that the reserve assets are

instrumental for future pension benefits payments, act
solely for the benefit of pension recipients, and pledge
to pay due attention as prudent experts in exercising
our fiduciary responsibilities. The Committee membersof the Investment Advisory Committee shall by nomeans be motivated by benefitting the organizations
to which they belong.

3. Compliance with laws and maintaining highest
professional ethics and integrity○ We shall comply with laws and social norms, remain

fully cognizant of our social responsibilities associatedwith pension reserve management, and act with thehighest professional ethics and integrity to avoid any
distrust or suspicion of the public.

4. Duty of confidentiality and protecting the GPIF’s asset○ We shall strictly control confidential information that we

come to access through our businesses, such as nonpublic information related to investment policies andinvestment activities, and never use such information
privately or illegally.
○ We shall effectively use the GPIF’s assets, bothtangible and intangible (e.g., documents, proprietary
information, system, and know-how), and protect andmanage such assets properly.
5. Prohibition of pursuing interests other than those of GPIF

○ We shall never use our occupations or positions for theinterests of ourselves, relatives, or third parties.

○ We shall never seek undue profits at the expense of the

GPIF.

37

internal rules for the Code of Conduct, as disclosed on our
website.

March 2015

6. Fairness of business transactions○ We shall respect fair business practices at home andabroad, and treat all counterparties impartially.

○ We shall never make transactions with anti-social forces

or bodies.

7. Improving information disclosure○ We shall continue to improve our public information

disclosure and public relations activities.

○ We shall ensure the accuracy and appropriateness of

our financial statements and other public documentsthat are required to be disclosed by laws andordinances.
○ We shall remain mindful that our outside activities,
regardless of whether business or private (e.g.,
publications, speeches, interviews, or use of social
media) affect the credibility of the GPIF, and act
accordingly.
8. Developing human resources and respect in the workplace○ We are committed to the GPIF’s mission by improving

our professional skills and expertise, promoting
communication and teamwork and nurturing a diversityof talents and capabilities.
○ We shall respect each person’s personality, talents andcapabilities, perspectives, well-being, and privacy tomaintain a good work environment, and never allow
discrimination or harassment.
9. Self-surveillance of illegal or inappropriate activity○ Whenever an illegal or inappropriate activity is (or is

expected to be) perpetrated by Committee members,
executives, staff, or other related personnel, suchactivity shall be immediately reported to the GPIF
through various channels including our whistleblowing
system.
○ When such a report is made, we shall conduct thenecessary investigation and take corrective actions andpreventive measures according to our internal rules.

Overview of the Government Pension Investment Fund ｜ 3 Organization and Internal Control System

3 Organization and Internal Control System［1］Organization
As of April 1, 2016, the GPIF has five executives, consistingof the President, two Executive Managing Directors (one forPlanning and General Affairs and another for investment
Management and serving as the CIO), and two Auditors(including one non-executive auditor), as well as 91
employees (including one part-time employee).
The organization consists of the General Affairs Department(General Affairs Division, Accounting Division), Planning andCommunication Department (Planning and Communication

Division, Treasury Division, Research Division), Portfolio Risk
Management Department, IT Administration and Security
Department (IT Administration Division, Information Security
Division), Investment Strategy Department (Investment
Strategy Division), Investment Administration Department,
Public Market Investment Department (Public Market
Investment I, Public Market Investment II), Private Market
Investment Department, Internal Fixed Income Investment
Department, and Internal Audit Department (to report
directly to the President).
Chapter2

Organization Chart (as of April 1, 2016)
Investment Advisory Committee
General Affairs
General Affairs Department

President

Accounting

Executive Managing Director(Planning and General Affairs)
Executive Managing Director(Management and Investment)
and CIO

Planning and Communication
Chief of staff

Auditor (Full-time)
Auditor (Part-time)

Planning and Communication
Department

Treasury
Research

Portfolio Risk Management
Department

Assistant to
AuditorCompliance Ofﬁcer

Legal Ofﬁcer

IT Administration and Security
Department

Investment Strategy
Department

IT Administration
Information Security
Investment Strategy

Investment Administration
Department

Public Market Investment
Department

Public Market Investment I
Public Market Investment II

Private Market Investment
Department
Internal Fixed Income
Investment Department
Internal Audit Department

38

Overview of the Government Pension Investment Fund ｜ 3 Organization and Internal Control System［2］Internal control system
Regarding compliance with laws and regulations, theCompliance Committee under the Internal Control Committee
as well as the Compliance Officer are responsible for thismission. We also maintain a whistle-blowing system and takecorrective actions and preventive measures according to ourinternal rules whenever an illegal or inappropriate activity is(or is expected to be) perpetrated by Investment Advisory
Committee members, executives or employees of the GPIF.

Under the Basic Policies of Internal Control, we maintain theeffectiveness and efficiency of business operations, comply
with laws and regulations, conduct risk management,
preserve documents and information, and ensure reliabilityof financial reporting.
In order to maintain the effectiveness and efficiency ofoperations, Internal Control Committee oversees the internal
control system, and directors, departments and persons
responsible for internal control are assigned. All executives
and employees are informed of the necessity to comply
with the Investment Principles and Code of Conduct andto act as an organization worthy of the trust of the public.
The Management and Planning Committee facilitates theefficient operation of the GPIF and ensures that importantmanagement matters are decided appropriately. Also, theChief Investment Officer (CIO) is assigned to run investment
management, and the Investment Committee, chairedby the CIO, ensures that investment decisions are madeappropriately. Furthermore, the Internal Audit Department
conducts internal auditing of the GPIF’s operations andrelated responsibilities.

Regarding investment risk management, the Investment Risk
Management Committee monitors and manages various
risks; the Internal Control Committee identifies, analyzes,
and manages risks that could impede the GPIF’s day-to-day
operations.
In order to manage/preserve documents and information
appropriately, internal policies are established for the
maintenance and usage of information systems and the
management of documents, and the Information Security
Committee is responsible for strengthening the robust
system for information security.

Sc he matic D i a g ra m o f In t e rn a l Co n t ro l
Appointed by the Minister of
Health, Labour and Welfare
from economic and ﬁnancial
experts

Investment
Advisory Committee

GovernanceCouncil

Minister of Health, Labour and Welfare(Pension schemes designing,Actuarial valuations)Monitoring, opinions
Deliberation on selection of
external asset managers etc.

Medium-term
objectives

Demanding corrective
measures Appointment of
President and Auditor

Preparation,
instruction

GPIF

Consultation(Planning and General Affairs)

・Executive Managing Director (CIO)

Audit

Reports, opinions
Approval

Medium-term plan

・Executive Managing Director

Board of Audit[Performance
evaluation]

President

Annual plan

AuditorAssistant to
AuditorRisk of losses management system

Internal Control Committee

Investment Risk Management Committee

Contract Monitoring
Committee

Management and Planning Committee

Internal Control Committee

Membership consistingof experts and others

Investment Committee

Information retention and management system

Information Security Committee

Procurement Committee

Reliability ensuring system including ﬁnancial reporting

Information Systems Committee

Management and Planning Committee
Tripartite Audit Committee(Auditor, Audit ﬁrm, Audit Ofﬁce)

Chief Information Ofﬁcer
Legal and regulatory compliance system

Internal Fixed Income
Investment Dept.

Private Market
Investment Dept.

Public Market
Investment Dept.

Investment
Administration Dept.

Investment Strategy
Dept.

IT Administration and
Security Dept.

*2
Portfolio Risk
Management Dept.

Whistle-blowing system

Internal Audit
Dept.

Compliance Ofﬁcer*1
Planning andCommunication Dept.

*3

Compliance Committee

General Affairs
Dept.

Internal Control Committee

39《 External audit》(GPIF Internal Controls Auditing Standards)

Operational effectiveness and efﬁciency securing system

Whistle-blowing
liaison (Legal Counsel)

Account auditor

Contract inspection,review*1 The Executive Managing
Director (Planning andGeneral Affairs) is responsible
for matters related to theGeneral Affairs Dept.,
Planning and Communication Dept., Portfolio Risk
Management Dept., andIT Administration and
Security Dept.
*2 The Executive Managing
Director (Investment andManagement)/CIO is
responsible for mattersrelated to the Investment
Strategy Dept.,Investment Administration
Dept., Public Market
Investment Dept., Private
Market Investment Dept.
and Internal Fixed
Income Investment Dept.
*3 The Internal Audit Dept.
is under the direct
jurisdiction of the
President.

Overview of the Government Pension Investment Fund ｜ 4 Investment Advisory Committee

4 Investment Advisory Committee
The Investment Advisory Committee has been establishedwithin the GPIF. It consists of eleven or fewer members witha high degree of economic or financial expertise or relevant
academic knowledge or experience, as appointed by the
Minister of Health, Labour and Welfare.

The Governance Council is established under theInvestment Advisory Committee. The Governance Council
makes proposals regarding the GPIF Investment Principles
and the Code of Conduct and monitors their status ofcompliance, among other duties.

Chapter2

Pursuant to the applicable law, preparation and revision of
the Statement of Operation Procedures and the Mediumterm Plan, including the policy asset mix, are to be madeafter deliberation by the Investment Advisory Committee. In
addition, at the GPIF these matters require the prior approvalof the Investment Advisory Committee subject to internal
rules, and the Investment Advisory Committee deliberates
on whether or not to approve these.

It is also entitled to monitor the status of asset managementof the reserve funds and other management and operational
matters, provide opinions on important matters related to
management and operations as requested by the President,
and make recommendations to the President on matters as
it deems necessary.

Members of Investment Advisory Committee(As of April 1, 2016)(As of Jun 30, 2016)

Hiromichi Oono	Member of the Board & Corporate Vice
President; AJINOMOTO CO., INC.
Professor; Department of English Communication,
Setsuya Sato*	
Faculty of Letters, Toyo University
Junko Shimizu*	Professor; Faculty of Economics,Gakushuin
University
Isao Sugaya	Managing Director;JTUC Research Institute forAdvancement of Living Standards
Yoko Takeda*	Chief Economist and Deputy General
Manager; Research Center for Policy andEconomy,Mitsubishi Research Institute, Inc.
Senior Researcher; Nomura Research Institute, Ltd.
○ Sadayuki Horie**	◦ Yasuhiro Yonezawa*	Professor; Graduate School of Business andFinance,Waseda University

Hiromichi Oono Member of the Board & Corporate Vice President
Ajinomoto Co., Inc.
Yasuyuki Kato	Professor, Graduate School of Management,
Kyoto University
Professor, Department of English Communication,
Setsuya Sato	
Faculty of Letters, Toyo University
Professor, Faculty of Economics Gakushuin○ Junko Shimizu	University

Isao Sugaya	Managing Director, JTUC Research Institute forAdvancement of Living Standards
Yoko Takeda	Chief Economist
Deputy General Manager, Research Center for Policy
and Economy, Mitsubishi Research Institute, Inc.

Committee members are listed in order of the Japanese syllabary.
◦ indicates Chairman; ○indicates Vice Chairman.
* indicates member of Governance Council; ** indicates Chairman of Governance Council.

Minister of Health,Labour and Welfare

Outline of the Governance Structure of GPIF
Design of public pension schemes
Actuarial valuation of public pension schemes
Setting of medium-term objectives of GPIF
Evaluation of achievements of theoperation of GPIF

Government Pension
Investment Fund

(Note 1)
(Note 2)
(Note 3)◦ Tomio Arai	Professor Emeritus, The University of Tokyo

Demands for improvements Appointment/dismissal of the President of GPIF

President
Formulation of medium-term plan of GPIF
(formulation/modiﬁcation of thestrategic asset allocation, etc.)

Management of external
asset management institutions
Implementation of in-house investment

Deliberations
Approval

Investment Advisory
Committee
Experts in ﬁnance,

Monitoring
Recommendations

economy,and relevant ﬁelds

40

Memo

41

Memo

1

42

Government Pension Investment Fund, Japan
Annual Report Fiscal Year 2015
This document has been prepared and released tothe public in accordance with Article 26 of the Act
on the Government Pension Investment Fund.
Inquiries

Planning and Communication Division,
Planning and Communication Department
Government Pension Investment Fund
Toranomon Hills Mori Tower, 1-23-1
Toranomon, Minato-ku, Tokyo, Japan
105-6377
Tel : +81-3-3502-2486 (direct dial)
Fax: +81-3-3503-7398
Website: http://www.gpif.go.jp/en/