Chapter

1 Investment Result in Fiscal Year 2016

1 Overall Assets［1］Investment results① Rate of investment return
10.0%

The result for Fiscal Year 2016 is+ 5.86 %7.98%

Quarterly
Cumulative

8.0%
6.0%

5.86%

5.66%

4.0%

1.84%

2.0%

0.21%

0.0%

due to positive returns on domestic andforeign equities.

–2.0%–2.12%–4.0%–3.88%–6.0%

Q1 endQ2 endQ3 endQ4 end20.0%

Market Investments

Total
Domesticbonds
Domestic
equities
Foreignbonds
Foreignequities

FILP bonds

1ｓ
ｔQ

2ndQ

3rdQ

4thQ

Total

–3.88%

1.84%

7.98%

0.21%

5.86%

1.91%

–1.34%–1.07%–0.32%–0.85%–7.38%

7.14%

15.18%

0.52%

14.89%–8.02%–0.22%

8.82%–3.09%–3.22%–7.76%

3.65%

16.46%

2.56%

14.20%

0.44%

0.44%

0.45%

0.45%

1.77%

14.89%

15.0%

14.20%

10.0%

5.86%

5.0%

0.00%

0.0%

–0.85%–5.0%–10.0%

1.77%–3.22%
Foreignbonds

Domestic Domestic
bonds
equities

Foreignequities

Short-term
assets

FILP
bonds

Total

(Note 1) Fiscal 2016 is the year ended March 31, 2017.
(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 the Fiscal Investment and Loan Program (FILP).

② Amount of investment returns¥billion
15,000

The result for Fiscal Year 2016 is

Quarterly
Cumulative+¥7,936.3 billion

2,374.6–5,000(Unit : ¥billion)

Market Investments

Total
Domesticbonds
Domestic
equities
Foreignbonds
Foreignequities
Short–term
assetsFILP bonds–5,234.2

4thQ

Total

2,374.6 10,497.1

298.8

7,936.3

938.3–667.1–519.0–148.1–395.8–2,257.4

2,023.4

4,608.3

180.4

4,554.6–1,519.3–39.8

1,576.2–613.3–596.2–2,410.7

1,045.5

3rdQ

4,821.1–5,234.2

871.3

4,327.3

0.0

0.0

0.0

0.0

0.0

14.9

12.6

10.5

8.4

46.4

Q1 end–2,859.6
Q2 endQ3 endQ4 end¥billion
10,0007,936.3
4,554.65,000

0–5,0004,327.3
0.0–395.8–596.2

Domestic Domestic
bonds
equities

Foreignbonds(Note 1) Investment returns are gross of fees.
(Note 2) Due to rounding, the total sum of figures in individual quarters does not necessarily match the total number.

9

298.8

0

–10,000

2ndQ

7,936.3

7,637.5

5,000

due to profits on domestic and foreign equities.

1ｓ
ｔQ

10,497.1

10,000Foreign Short-term
equities
assets

46.4

FILP
bonds

Total

③ Cumulative returns and asset size since fiscal year 2001
Chapter1

Cumulative returns from fiscal 2001 to fiscal 2016 are+¥53,360.3 billion

and the value of investment assets at the end of fiscal 2016 is¥144,903.4 billion¥billion

C um ulativ e return

60,000+53,360.3+50,733.8
50,000+45,423.9

40,000+35,441.5
30,000+25,220.9+17,370.3

20,000+13,425.8+11,852.5

10,000+1,851.1+4,463.8–10,000+13,998.6+11,689.3+2,504.3

0–587.4+11,389.4–3,040.5

FY2001

FY2002

FY2003

FY2004

FY2005

FY2006

FY2007

FY2008FY2009FY2010FY2011FY2012FY2013

FY2014FY2015FY2016

A sset size

¥billion

160,000
Market Investments

140,000

137,476.9

FILP bonds

114,527.8

120,000

119,886.8 117,628.6 122,842.5

116,317.0 113,611.2

120,465.3

126,577.1

134,747.5

144,903.4

102,871.4

100,000

87,227.8

80,00070,341.1

60,00040,00050,214.3
38,601.4

20,0000

FY2001

FY2002

FY2003

FY2004

FY2005

FY2006

FY2007

FY2008FY2009FY2010FY2011FY2012FY2013

FY2014FY2015FY2016(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 2016 ｜ 1 Overall Assets④ Income gain
The returns on investment assets are valued at market prices and can be classified into income gains(interest and dividend income) and capital income (gains or losses due to price fluctuations [realized
and unrealized gains or losses]). Investment of pension reserve funds is intended to deliver stable
returns in accordance with a policy asset mix established from a long-term perspective. Therefore,
income gains, which are generated in a stable stream from holdings of investment assets, are important.
In particular, market price fluctuations may cause losses on the capital income side in the short term,
but income gains are relatively immune to such changes and continue to bring profits constantly.
In Fiscal Year 2016, the total amount of income gains was¥2,533.4 billion (rate of return: +1.75%),

and the cumulative amount of income gains for the 16 years since Fiscal Year 2001,
when the GPIF started managing pension reserve funds, was¥28,080.8 billion (rate of return: +1.59%).

Cumul ative returns a nd i nco m e g a i ns s i nce F i s ca l 2 0 0 1¥billion

60,000

Cumulative returns
Income gains（ cumulative）+53,360.3+50,733.8

50,000+45,423.9

40,000+35,441.5
28,080.8

30,000+25,220.9

20,000+17,370.3+13,425.8

10,000537.8+1,851.1

1,189.6–587.4–10,000

FY2001

4,474.9–3,040.5

FY2002

FY2003

FY2004

FY2005

FY2006

1.87%

Rate of return（ total）

FY2009FY2010FY2011

1.79%

1.80%

1.79%

1.43%

1.30%
1.18%

1.27%

1,250.0

210.6

750.0

69.6
77.8
64.4

45.4
54.4
44.7

500.0

107.2
135.7
99.2

390.5

439.0

488.5

FY2001

FY2002

FY2003

FY2013

FY2014FY2015FY2016

162.2

247.7

192.8
123.9

165.3

626.3

FY2004720.8

FY2005

308.8

301.1

398.3

338.5

399.5

266.3

401.4
234.3

292.4
353.1
266.0

244.1

323.5
331.1
303.2

360.4
320.0
324.8

438.1

383.8
366.6

FY2006

1,038.4

FY20071,225.7

FY20081,255.9

FY20091,180.9

FY20101,076.1

FY2011968.3

FY2012952.4

FY2013

1.80%
1.60%

1.64%
771.4

753.4

490.4

517.8

530.0

1.40%
1.20%

420.4

445.7

210.2

827.5

2.00%
1.75%

1.69%
1.64%

318.3

1.31%
263.7

1,000.0

FY2012

1.89%

1.67%
1.39%

1,500.011

FY2008I nco m e g a i n

Domestic bonds

1,750.0

0.0

FY2007

Domestic equities

2,000.0

250.0+13,998.6

2,021.1

2,500.0
2,250.0+11,689.3 +11,389.4

Foreign bonds

2,750.0

12,509.4

20,751.8

8,116.4 +2,504.3

Foreign equities¥billion

3,000.0

10,315.7

6,115.5+4,463.8
3,127.00+11,852.5

25,547.4

18,610.7

16,636.7

14,602.6

23,005.0

1.00%
0.80%

607.5

684.3

0.60%
0.40%

855.1

FY2014

672.3

577.9

FY2015FY2016

0.20%
0.00%

Review of management and investment in fiscal 2016 ｜ 1 Overall Assets

Rate of return, returns (Income gains)
Cumulative FY2001
Domestic bonds

Foreign bonds

Foreign equities

FY2004

FY2005

FY2006

FY2007

FY2008FY2009FY2010FY2011FY2012FY2013

FY2014FY2015FY2016

439.0

488.5

626.3

720.8

827.5

1,038.4

1,225.7

1,255.9

1,180.9

1,076.1

968.3

952.4

855.1

672.3

577.9

（1.30%） （1.49%） （1.26%） （1.03%） （1.03%） （1.10%） （1.12%） （1.21%） （1.41%） （1.51%） （1.52%） （1.50%） （1.30%） （1.36%） （1.51%） （1.27%） （1.21%）
4,450.6

44.7

64.4

99.2

123.9

165.3

210.2

244.1

266.3

234.3

266.0

303.2

324.8

366.6

445.7

607.5

684.3

（1.51%） （0.65%） （0.87%） （0.83%） （1.00%） （0.87%） （1.10%） （1.77%） （2.34%） （1.59%） （1.98%） （2.14%） （1.85%） （1.76%） （1.41%） （1.99%） （1.95%）
5,062.7

54.4

77.8

135.7

192.8

247.7

338.5

399.5

398.3

401.4

353.1

331.1

320.0

383.8

420.4

490.4

517.8

（3.31%） （4.04%） （3.06%） （3.43%） （3.33%） （3.28%） （3.73%） （4.13%） （3.98%） （3.96%） （3.75%） （3.33%） （2.71%） （2.74%） （2.31%） （2.59%） （2.63%）
5,256.0

45.4

69.6

107.2

162.2

210.6

263.7

318.3

308.8

301.1

292.4

323.5

360.4

438.1

530.0

771.4

753.4

（2.18%） （1.19%） （1.56%） （1.81%） （1.99%） （1.96%） （2.09%） （2.92%） （3.40%） （2.27%） （2.23%） （2.48%） （2.42%） （2.22%） （1.76%） （2.48%） （2.16%）
28,080.8

Total

390.5

FY2003

Chapter1

Domestic equities

13,295.6(Unit : ¥billion)

FY2002

537.8

651.8

831.4

1,106.0

1,347.9

1,640.7

2,000.8

2,199.4

2,193.7

2,093.2

2,034.1

1,973.9

2,141.1

2,253.2

2,542.4

2,533.4（1.59%） （1.39%） （1.30%） （1.18%） （1.27%） （1.31%） （1.43%） （1.67%） （1.87%） （1.79%） （1.80%） （1.79%） （1.64%） （1.69%） （1.64%） （1.89%） （1.75%）(Note 1) Due to rounding, the total sum of the figures in individual fiscal years does not necessarily match the cumulative amount of income gains.
(Note 2) The figures for domestic bonds include income gains from FILP bonds (including convertible corporate bonds only in Fiscal Year 2001), while the total includes
income gains from short-term assets.
(Note 3) The annual rate of return represents the geometric mean of the rates of return in individual fiscal years. (annualized)⑤ Comparison to the investment return target assumed in the MHLW’s actuarial valuation

The average real investment return* isand is3.12 %

2.80 %

for sixteen years since fiscal 2001

for eleven 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

FY2006 FY2007–4.01 –6.69

7.61

2.91

3.52 –4.69 –7.61

9.57

FY2008FY2009FY20107.88 –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

FY2011FY2012FY2016

8.62 12.24 –3.84

5.82

2.91

2.53

0.21

0.13

0.50

0.03

–0.19

–0.26

2.51

9.98

8.48 11.14 –4.31

5.79

3.12

2.80

FY20160.68 –0.21

FY2014

Last 11 years Last 16 years（annualized）（annualized）

FY20152.29 10.21

FY2013

0.99

Yields used in
actuarial valuation

Investment return target assumed in the MHLW’s actuarial valuation(%)

FY2001

FY2002

FY2003

FY2004 FY2005

FY2006 FY2007

FY2008FY2009FY2010FY2011FY2012FY2013

FY2014

Nominal investment return

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

1.34

Nominal rate of increasein wages

2.50

2.50

0.00

0.60

1.30

2.00

2.30

2.70

0.05

3.41

2.66

2.81

2.60

1.00

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

0.34

FY2015

Last 11 years Last 16 years（annualized）（annualized）

1.88

2.17

2.06

2.12

1.61

1.88

2.01

2.09

2.47

2.52

2.23

1.96

1.63

2.27

2.13

1.89

–0.59 –0.35

–0.16

0.16

–0.02 –0.39

–0.11

0.19

12

Review of management and investment in fiscal 2016 ｜ 1 Overall Assets⑥ Investment assets and portfolio allocation(Consolidated with GPIF and the Pension Special Account)

Shor t-term assets

inside： policy asset mix (ﬁgures in parentheses
indicate deviation limits)

8.89%

outside：ﬁscal 2016

Domestic
bonds

25 %

Foreignequities35 %( ± 8%)

23 . 12 %( ± 10 % )

15
%
±
(

31.68%

4%)25 %( ± 9%)

Foreignbonds

Domestic
equities

13.03%

23.28%

Market value（¥billion）

Allocation ofreserve fund（A）

Policy asset mix（B）

Deviation（A–B）

Domestic bonds

47,870.7

31.68%

35%（±10%）−3.32%

Market investments

46,223.6

30.59%−−（Book value）
FILP
bonds
（Market value）

1,647.2

1.09%

−

−

（1,748.5）−−−

Domestic equities

35,178.4

23.28%

25%（±9%）−1.72%

Foreign bonds

19,681.7

13.03%

15%（±4%）−1.97%

Foreign equities

34,926.2

23.12%

25%（±8%）−1.88%

Short–term assets

13,436.5

8.89%

−

−

Total

151,093.5

100.00%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 2016, 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 0.07% (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 2016
(Unit : ¥billion)

Domestic bonds Domestic equities
Allocated/withdrawn

13−4,580.9+45.0Foreign bonds

Foreign equities+1,339.2−471.3(Note 1) Each number shows the net rebalancing amount.
(Note 2) Redemptions and coupon revenue of the Special Fundfor cash outflow were ¥3,374.1 billion. Redemptions andcoupon revenue of the Special Fund for FILP bonds were
¥1,841.5 billion.

Review of management and investment in fiscal 2016 ｜ 1 Overall Assets⑦ Factor analysis of difference from compound benchmark return

5.86%

against a compoundbenchmark return ofrepresenting an
excess rate of return of–0.37%

6.22%,

Chapter1

The rate of return on allinvestment assets came to.

Taking the average for the 11 years since the GPIF's establishment in FY2006,
the total rate of return on
the compound benchmark
and the excess
all investment assets was
rate of return was
return rate was

2.91%

2.87%

,

+0.04%,, respectively.

The GPIF breaks down the difference between the total rate of return on all investment assets and the compound benchmark
rate of 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 thecorresponding benchmark rate of return.
(iii) Other factors: Factors involving both the asset allocation and individual asset factors and calculation errors* (including 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.

In FY2016, the rate of return attributable to asset allocation
factors was -0.66%. Domestic and foreign equities, which
delivered higher returns than the compound benchmark
return, were underweighted on average compared with thepolicy asset mix. The rate of return attributable to individual
asset factors was +0.33%. Foreign bonds made significant
positive contributions by delivering a return of +0.36%.

Factor analysis of the difference from the compound benchmark return in Fiscal Year 2016
Rate of return
Return of GPIF

Total

Domestic bonds
Domestic equities
Foreign bonds
Foreign equities
Short–term assets

5.86%−0.74%
14.89%−3.22%
14.20%
0.00%

Benchmark returnon each asset
6.22%−0.79%
14.69%−5.41%
14.61%
0.00%

Excess rate of
return−0.37%+0.05%+0.20%+2.19%−0.41%
0.00%

Factor analysis of excess rate of return

Asset allocation
factor（1）−0.66%−0.15%−0.20%+0.16%−0.21%−0.25%

Individual asset
Other factors
+
（2）
+
（3）
（3） （1）
factor（2） （including error）+0.33%−0.04%−0.37%+0.02%+0.00%−0.13%+0.05%−0.00%−0.16%+0.36%−0.04%+0.49%−0.10%+0.01%−0.30%
0.00%
0.00%−0.25%(Note) The “compound benchmark return” is expressed in terms of an annualized rate calculated on the basis of the “compound benchmark rate return (monthly basis),”which was obtained by weight-averaging the benchmark rates of return on individual assets according to the shares in the policy asset mix (domestic bonds: 35%;
domestic equities: 25%; foreign bonds: 15%; foreign equities: 25%).

Factor analysis of the difference from the compound benchmark return on overall assets (from Fiscal Year 2006 to 2016)
Rate of return
FY2006～FY2016
FY2006
FY2007
FY2008FY2009FY2010FY2011FY2012FY2013
FY2014from Apr.1 to Oct.30
FY2014from Oct.31 to Mar.31,2015
FY2015FY2016

Factor analysis of excess rate of return

2.91%
4.56%
ー6.10%
ー7.57%
7.91%
ー0.25%
2.32%
10.23%
8.64%

Benchmark returnon each asset
2.87%
4.64%
ー6.23%
ー8.45%
8.54%
ー0.02%
2.59%
9.00%
7.74%

Excess rate of
return+0.04%
ー0.08%+0.13%+0.88%
ー0.63%
ー0.23%
ー0.27%+1.24%+0.90%

Asset allocation
factor（1）+0.04%
ー0.06%+0.17%+0.90%
ー0.70%
ー0.26%
ー0.19%+1.40%+0.92%

3.97%

3.50%

+0.46%+0.47%

8.19%

9.98%

ー1.78%

ー1.99%

ー3.81%
5.86%

ー3.81%
6.22%+0.00%
ー0.37%+0.21%
ー0.66%

Return of GPIF

Individual asset
Other factors
+
（2）
+
（3）
（3） （1）
factor（2） （including error）
ー0.01%+0.04%+0.01%
ー0.00%
ー0.02%
ー0.08%
ー0.02%
ー0.02%+0.13%
ー0.12%+0.11%+0.88%+0.08%
ー0.01%
ー0.63%+0.12%
ー0.09%
ー0.23%
ー0.01%
ー0.07%
ー0.27%+0.03%
ー0.19%+1.24%
ー0.06%+0.04%+0.90%
ー0.03%+0.02%+0.46%+0.01%+0.19%

ー1.78%

ー0.15%+0.33%

ー0.06%
ー0.04%+0.00%
ー0.37%(Note 1) Representing the geometric mean of the rates of return in individual fiscal years (an annualized rate)(Note 2) For the period from Fiscal Year 2006 to 2007, analysis of the difference between the rate of return on market investments (time-weighted rate of return) and thecompound benchmark return was conducted. For the period from Fiscal 2008 onwards, analysis of the difference between the rate of return on overall invested
assets (modified total return) and the compound benchmark return was conducted.
(Note 3) For the period from Fiscal Year 2006 to 2007, the rate of return for the GPIF (overall assets) represents the geometric mean of the rates of return on market investments
in individual fiscal years, and for the period from Fiscal Year 2008 onwards, it represents the geometric mean of the modified total returns in individual years.
(Note 4) The figures for the period from Fiscal Year 2008 onwards also reflect the rate of return on FILP bonds.

14

Review of management and investment in fiscal 2016 ｜ 1 Overall Assets⑧ Fees and expenses¥40.0 billion

In fiscal 2016, total fees rose by¥1.7 billion from the previous year to

The average rate of the total fees against
the investment balance for fiscal 2016 was

0.03%

45.0
40.0
35.0

30.9

28.8

0.03%

15.0

0.02%

0.08

29.1
25.8

24.6

25.0

0.03%

0.09

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

34.3

30.0

20.0

0.10

40.0

38.3

Management and custodian fees (¥ billion, left scale)

0.02%

23.1

0.02%

0.02%

0.07

25.3

0.06

22.2

0.02%

0.05

0.02%

0.02%

0.03%

0.03%

0.04
0.03

10.0

0.02

5.0

0.01

0.0

FY2006

FY2007

FY2008FY2009FY2010FY2011FY2012FY2013

FY2014FY2015

Fees by asset class
Total

0.00

FY2016(Unit : ¥billion)

FY2006

FY2007

FY2008FY2009FY2010FY2011FY2012FY2013

FY2014FY2015FY2016

30.9

34.3

28.8

25.8

24.6

23.1

22.2

25.3

29.1

38.3

40.0*

Domestic bonds

8.5

10.2

10.0

7.1

6.7

6.4

4.7

3.6

3.8

3.8

3.9

Domestic equities

9.8

9.6

7.0

6.6

6.5

6.2

5.9

7.8

5.7

8.3

8.8

Foreign bonds

4.9

6.3

6.1

6.0

5.6

5.2

5.7

6.8

8.5

9.1

12.5

Foreign equities

7.7

8.2

5.6

6.1

5.8

5.3

6.0

7.2

11.2

17.0

14.9

(Note) The total includes fees and expenses related to alternative assets.

Average rate of fees against externally managed assets
Total

(%)

FY2006

FY2007

FY2008FY2009FY2010FY2011FY2012FY2013

FY2014FY2015FY2016

0.03

0.03

0.02

0.02

0.02

0.02

0.02

0.02

0.02

0.03

0.03

Domestic bonds

0.03

0.02

0.02

0.01

0.01

0.01

0.01

0.01

0.01

0.02

0.03

Domestic equities

0.05

0.06

0.06

0.05

0.05

0.05

0.04

0.04

0.02

0.03

0.03

Foreign bonds

0.06

0.07

0.06

0.06

0.06

0.06

0.06

0.05

0.05

0.05

0.07

Foreign equities

0.07

0.06

0.06

0.05

0.05

0.04

0.04

0.04

0.05

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

137.3

(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.

15

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

Review of management and investment in fiscal 2016 ｜ 1 Overall Assets［2］Risk management
Chapter1① Asset Allocation and Tracking Errors
Changes in asset allocation during fiscal 2016 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

55.0%

45.0%

25.0%

Upper limit of permissible

20.0%

Actual allocation

35.0%

25.0%

15.0%

35.00%
31.68%

Lower limit of permissible range

Mar

Apr

May

Jun

Jul

15.00%

15.0%

Policy asset mix

13.03%
10.0%

Aug

Sep

Oct

Nov

Dec

Jan

Feb

5.0%

Mar

Mar

Apr

May

Jun

Domestic equities

Aug

Sep

Oct

Nov

Dec

Jan

Feb

Mar

F oreign eq uities

40.0%

40.0%

35.0%

35.0%

30.0%

30.0%

25.00%

25.0%

25.00%

25.0%

23.28%

20.0%

23.12%

20.0%

15.0%
10.0%

Jul

15.0%

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

Jan

Feb

10.0%

Mar

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

Jan

Feb

Mar

(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 trac king error of reserv e funds
3.0%

2.5%

2.0%

1.5%

1.0%

0.5%

0.0%

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

Jan

Feb

Mar

16

Review of management and investment in fiscal 2016 ｜ 2 Investment in Bonds

2 Investment in Bonds［1］Domestic bonds① Excess rate of return
Concerning domestic bond investment (market investment),
the excess rate of return over the benchmark was +0.05%(+0.18% for active investment and +0.02% for passive
investment). In active investment, the return outperformed
the benchmark due to the positive contributions of
security selection in the government bond sector andthe portfolio’s overweight in corporate bonds comparedwith the benchmark. In passive investment, the return wascomparable with the benchmark. For overall domestic bondinvestment as well, the rate of return was in line with thebenchmark.

② Contribution analysis of excess rate of return
The breakdown of the excess rate of return (+0.05%) on domestic bond investment (market investment) by factor is as follows:
fund factors (Note 1) : +0.05%; benchmark factors (Note 2) : -0.01%; other factors (Note 3) : +0.01%.
Time–weighted rateof return（1）Benchmark（2）

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

Benchmark factors

Other factors-0.85%-0.90%+0.05%+0.05%-0.01%+0.01%The excess rate of return turned positive mainly because of a fund factor—a higher rate of return on active investment than the
managers’ benchmark.

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%+0.01%+0.01%+0.03%-0.00%+0.05%

Benchmark factors-0.03%-0.13%+0.17%-0.04%+0.02%-0.01%(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–inflation-linked bonds (with the principal repayment guaranteed).
(Note 2) Benchmark factors refer to factors resulting from differences in the rates of return between managers’ benchmarks and the benchmark (a compound index consistingof Nomura–BPI [excluding ABS], Nomura–BPI government bonds, Nomura–BPI/GPIF Customized and Nomura–inflation-linked bonds (with the principal repayment
guaranteed) [weighted average according to each asset type’s share of the investment amount]). They are calculated in consideration of the market total averagebalance of each fund.
(Note 3) Other factors refer to factors such as calculation errors.

17

Review of management and investment in fiscal 2016 ｜ 2 Investment in Bonds［2］Foreign bonds

The excess rate of return over the benchmark was +2.19%(+5.91% for active investment and +0.05% for passive
investment). In active investment, the return outperformed
the benchmark because of the positive contributions of

Chapter1① Excess rate of returnsecurity selection in USD and EUR bond investment andthe portfolio’s underweight in EUR bonds relative to thebenchmark. In passive investment, the return was in line withthe benchmark.

② Contribution analysis of excess rate of return
The breakdown of the excess rate of return (+2.19%) on foreign bond investment by factor is as follows: fund factors (Note 1) :+1.07%; benchmark factors (Note 2) : +1.06%; other factors (Note 3) : +0.06%
Time–weighted rateof return（1）Benchmark（2）

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

Benchmark factors

Other factors-3.22%-5.41%+2.19%+1.07%+1.06%+0.06%The positive excess rate of return reflected the contributions of the outperformance of global aggregate investment relative tothe managers’ benchmark (a fund factor) and the higher level of the managers’ benchmark for global aggregate investment
than the benchmark for foreign bonds (a benchmark factor).

Factor analysis by investment styles
WGBI U.S government Global aggregate U.S aggregate Europe aggregate Inflation–linked U.S. high–yield Europe high–yield Emerging Infrastructure(passive) 1–3years（passive）（active） （active） （active） （active） （active） （active） （active） （active）

Total

Fund factors+0.03%+0.00%+0.92%+0.13%+0.01%-0.00%-0.02%+0.00%+0.01%-0.01%+1.07%

Benchmark factors

0.00%-0.00%+0.69%+0.15%-0.01%+0.02%+0.19%+0.01%+0.02%

0.00%+1.06%(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 (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.

18

Review of management and investment in fiscal 2016 ｜ 3 Investment in Equities

3 Investment in Equities［1］Domestic equities① Excess rate of return
The excess rate of return over the benchmark was +0.20%(+2.61% for active investment and -0.04% for passive
investment). In active investment, the return outperformed
the benchmark due to positive contributions from theportfolio’s underweight in the land transportation sector

and the overweight in the machinery sector relative to thebenchmark as well as security selection in the pharmaceuticalsector. In passive investment, the return was in line with thebenchmark.

② Contribution analysis of Excess rate of return
The breakdown of the excess rate of return (+0.20%) on overall domestic equity investment by factor is as follows: fundfactors (Note 1) : +0.17%; benchmark factors (Note 2) : +0.05%; other factors (Note 3) : -0.02%.
Time–weighted rateof return（1）Benchmark（2）

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

Benchmark factors

Other factors

14.89%

14.69%+0.20%+0.17%+0.05%-0.02%The return outperformed the benchmark mainly because the TOPIX (active) delivered a higher return than the managers’
benchmark (a fund factor).

Factor analysis by investment styles
TOPIX（passive）

JPX Nikkei 400（passive）

MSCI Japan
Standard（passive）

RUSSELL/NOMURA
Prime（passive）

Nomura RAFI
（passive）

S&P GIVI
Japan（passive）

Fund factor+0.03%-0.00%+0.00%+0.00%+0.00%-0.02%

Benchmark factors

0.00%-0.07%-0.03%-0.00%+0.12%-0.07%MSCI Japan
Small（active）

Total

TOPIX
（active)

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

Fund factor+0.12%+0.00%+0.01%+0.02%+0.17%

Benchmark factors

0.00%+0.09%+0.01%+0.01%+0.05%(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 (TOPIX dividends included). 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.

19

Review of management and investment in fiscal 2016 ｜ 3 Investment in Equities［2］Foreign equities

The excess rate of return over the benchmark was -0.41%(-2.49% for active investment and -0.01% for passive
investment). In active investment, the return underperformed
the benchmark because of the negative contributions of theportfolio’s underweight in the banking sector relative to thebenchmark and security selection in the pharmaceutical,

Chapter1① Excess rate of returnbiotechnology, and life sciences sectors in developedcountry markets. The negative contributions more than offset
the positive contributions of security selection in the food,drink and tobacco sector and the software and services
sector in emerging-country markets. In passive investment,
the return was in line with the benchmark.

② Contribution analysis of Excess rate of return
The breakdown of the excess rate of return (-0.41%) on foreign equity investment by factor is as follows: fundfactors (Note 1) : -0.39%; benchmark factors (Note 2) : +0.00%; other factors (Note 3) : -0.03%.
Time–weighted rateof return（1）Benchmark（2）

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

Benchmark factors

Other factors

14.20%

14.61%-0.41%-0.39%+0.00%-0.03%The underperformance of active investment in developed-country markets relative to the managers’ benchmark (a fund factor)
made negative contributions.

Factor analysis by investment styles
ACWI(passive)

Developed（passive）（note4）Developed（active）

Emerging（active）

Private Equity（active）

Total

Fund factors-0.01%-0.03%-0.37%+0.03%-0.00%-0.39%

Benchmark factors+0.02%+0.00%-0.03%+0.01%+0.00%+0.00%(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.
(Note 4) Investment in developed countries (passive investment) is interim management investment (investment made for the purpose of maintaining exposure until the
allocation of funds in cases such as when the allocation destination is not yet determined in transition management or when the investment timing needs to beconsidered).

20

Review of management and investment in fiscal 2016 ｜ 3 Investment in Equities［3］Fulfiling stewardship responsibilities and exercise of voting rights① Fulfiling stewardship responsibilities
A. Significance of implementation of stewardship activities by the GPIF
For the GPIF, which is a universal owner (an investor with avery large fund size and a widely diversified portfolio) anda super-long-term investor (responsible for supporting
pension finance with an investment horizon of as long as 100
years), it is essential to minimize negative externalities (e.g.
environmental and social issues) and to contribute to thesustainable growth of the overall capital market. As the GPIF
makes equity investments and exercises voting rights via

external asset managers, it fulfils stewardship responsibilities
by promoting constructive dialogue (engagement) between
external asset managers and investee companies. Suchdialogue will ultimately boost the investment returns bycontributing to the growth of the overall Japanese economy
through an increase in Japanese companies’ corporate
value over the medium-to long-term, thereby building a winwin relationship in the investment chain.

B. Examples of stewardship activities by the GPIFThe major activities for fulfiling stewardship responsibilities in FY2016 are as follows:(i)	Conducted a questionnaire survey with companies which are components of the JPX Nikkei 400 index.
(ii) Held the “Business and Asset Owners’ Forum.”(iii) Held the “Global Asset Owners’ Forum.”(iv)	Published a list of excellent corporate governance reports and integrated reports selected by external asset managers
employed by the GPIF.

(v)	Revised the criteria for evaluating external asset managers (e.g. increasing the weight of activities related to thestewardship responsibilities conducted by external asset managers entrusted with passive investment in domestic
equities).
(vi)	Strengthened collaboration with organizations involved with the PRI Association and other relevant organizations inJapan and abroad.
(vii) Joined the UK 30% Club and the US Thirty Percent Coalition.

(viii) Solicited proposals for ESG indices comprised of Japanese equities.

C. Stewardship activities by external asset managers
The GPIF required all external asset managers entrusted withdomestic equity investment to report on their stewardship
activities. As a result, the GPIF found that they are proactively
engaging with investee companies—for example, they arecontinuously engaging in dialogue and enhancing thesubstance of communication and identified challenges
related to their stewardship activities.

(i)	External asset managers have established or strengthened divisions or committees dedicated to overseeing stewardship
activities. This indicates their readiness to systematically conduct stewardship activities on a routine basis instead of
merely exercising voting rights at annual shareholders’ meetings.

(ii)	Although all external asset managers are conducting engagement activities, the definition and substance of the activities
vary across asset managers depending on the organizational structure and investment style. Some asset managers citedinterviews with outside directors as a new initiative.

(iii)	Although all external asset managers entrusted with domestic equity investment professed to be addressing ESG(environmental, social and governance) issues, few are actually doing so as part of their engagement activities. On thewhole, asset managers give consideration to ESG issues only in relation to governance or the exercise of voting rights.
Therefore, their efforts to address ESG issues, particularly environmental and social ones, are not sufficient.
(iv)	In some cases, external asset managers appeared to be mechanically following the pro-forma standards orrecommendations from proxy advisors when exercising voting rights.

21

Review of management and investment in fiscal 2016 ｜ 3 Investment in Equities

D. Calling for external asset managers to address challenges
In addition, we would like external asset managers to tackle
the following two new challenges:

Chapter1

We have already expressed strong expectations for external
asset managers to address the following four challenges:(i) contributing to the enhancement of investee companies’
corporate value and their sustainable growth over the
medium-to long-term through engagement activities
making full use of corporate governance reports andintegrated reports; (ii) enhancing the effectiveness of systemsof governance and prevention of conflicts of interest; (iii)exercising voting rights in ways that contribute to investee
companies’ sustainable growth; and (iv) giving consideration
to ESG issues (ESG integration) when making investment.

○ Proposing a new business model for passive investmentthat matches asset owners’ needs in this era ofstewardship accountability.
○ Considering an appropriate remuneration systemfor executives and employees [at asset management
institutions] (making sure to avoid providing an incentivethat could foster short-termism).

E. GPIF’s new stewardship initiatives(i)	The GPIF will shift from the existing unilateral monitoring approach—checking external asset managers’ stewardship
activities once a year—to the engagement approach—focusing on two-way communication so as to foster understanding
on its attitude to the stewardship responsibilities.
(ii)	The GPIF will consider developing a method of evaluating passive investment and a fee system that are suited to a new
business model for passive investment in this era of stewardship accountability.
(iii)	The GPIF will improve the method of evaluating engagement activities and ESG integration.

(iv)	The GPIF will check the state of governance at external asset managers, including the exercise of voting rights, theindependence of the board of directors and outside directors intended to ensure the effectiveness of prevention of
conflicts of interest, and the role of third-party committees.
(v)	The GPIF will hold interviews with external asset managers entrusted with foreign equity investment as well with respect
to their stewardship and ESG activities outside Japan.

② Exercise of voting rights
A. Concept of exercise of voting rights
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 this regard, the GPIF in its Medium–term Plan states,“The GPIF 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.

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.”
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.

B. Exercise of voting rights in the fiscal 2016
In fiscal 2016, we held meetings based on the reports on thevotes cast from April to June 2016 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 a result, we confirmed that the voting rights wereappropriately exercised.

22

Review of management and investment in fiscal 2016 ｜ 3 Investment in Equities(a) Situation of external asset managers of domestic equities (April 2016 to March 2017)
Number of external asset managers who exercised voting rights
28 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

Appointmentof auditors

External
directors

Appointment
Directorof accounting
remuneration
auditors

External
auditors

Director
retirement
benefits

Director
bonuses(Unit : No. of proposals, percentage)

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

Poison Pills（Rights plan）

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

Warning
type

amendment ofGrantingof stock
options

Other
proposals

Trust–typeTotal

145,639

38,19523,482

15,467

365

6,106

1,871

1,655

1,438

12,748

64

1,446

7,037

1,241

8

235

203,335

145,527

38,19023,473

15,467

365

6,106

1,871

1,655

1,438

12,675

33

1,446

5,822

1,241

8

226

201,886（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%）（100.0%）（100.0%）
135,419

34,195

20,234

12,361

364

5,938

1,815

767

1,176

12,240

33

1,421

5,644

536

2

187

185,776（93.1%） （89.5%） （86.2%） （79.9%） （99.7%） （97.2%） （97.0%） （46.3%） （81.8%） （96.6%）（100.0%） （98.3%） （96.9%） （43.2%） （25.0%） （82.7%） （92.0%）
3,106

1

168

（6.9%） （10.5%） （13.8%） （20.1%）

10,108（0.3%）（2.8%）

112

3,995

3,239

5

262

435

0

25

（3.0%） （53.7%） （18.2%）

56

888

（3.4%）（0.0%）（1.7%）

73

31

9

0

0

0

0

0

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

0

0

0

0

0

0

0

0

0

（0.0%）（0.0%）（0.0%）（0.0%）（0.0%）（0.0%）（0.0%）（0.0%）

112

5

9

0

0

0

0

0

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

15

178

16,110（8.0%）

0（0.0%）（100.0%）（100.0%）
039（3.1%） （56.8%） （75.0%） （17.3%）

705

6

1,215

0

（0.0%）（100.0%）（0.0%）

0

9

1,449

（0.0%）（100.0%）（100.0%）

6

0

59

0

0

0

80

（0.0%） （20.5%） （19.4%）（0.0%）（4.9%）（0.0%）（0.0%）（0.0%）（5.5%）

0

1,156

0

0

9

1,369

（0.0%） （95.1%）（0.0%）

058

25（0.0%） （79.5%） （80.6%）（0.0%）（100.0%） （94.5%）(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 percentages to the total number of each proposal.

(b) Situation of external asset managers of foreign equities (April 2016 to March 2017)
Number of external asset managers who exercised proxies
22 funds
Number of external asset managers who did not exercise proxies
none

Proposal

Shareholder proposals

Management proposals

Number of voting
rights exercised
Total

Approved

Opposed

Total

Approved

Opposed

Proposal pertaining to company
organization

Appointment
Appointment Appointment
Directorof accountingof directors of auditors
remuneration
auditors

Director
retirement
benefits

Director
bonuses(Unit : No. of proposals, percentage)

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

Proposals pertaining to director
remuneration, etc.
Granting ofstock
options

Dividends

Proposals
PoisonOther proposals
pertaining to
Pills foramendment ofApprovalof
Acquisition
Mergers,
pre–warming
Otherfinancialof treasury acquisition, the articles of
proposals
type
incorporation
statement, etc.
stock
etc.

93,9103,295

12,024

19,782

454

359

4,500

8,830

4,794

13,181

7,016

391

11,98839,399219,923

92,792

2,934

11,966

19,374

454

351

4,394

8,802

4,789

12,9696,628

372

11,98833,960211,773（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%）
86,611

2,568

11,79817,405

404

280

3,401

8,760

4,390

11,1305,961

239

11,81830,311

195,076（93.3%）（87.5%）（98.6%）（89.8%）（89.0%）（79.8%）（77.4%）（99.5%）（91.7%）（85.8%）（89.9%）（64.2%）（98.6%）（89.3%）（92.1%）

6,181

366

168

1,969

50

71

993

42

399

1,839

667

133

170

3,649

16,697（6.7%）（12.5%）（1.4%）（10.2%）（11.0%）（20.2%）（22.6%）（0.5%）（8.3%）（14.2%）（10.1%）（35.8%）（1.4%）（10.7%）（7.9%）

1,118

361

58

408

0

8

106

28

5

212

388

19

0

5,439

8,150

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

522

181

31

87

0

2

26

0

0

200

（50.1%）（53.4%）（21.3%）（0.0%）（25.0%）（24.5%）（0.0%）（0.0%）（94.3%）

80

28

5

12

181

0

0

3,387

4,823

（75.5%） （100.0%） （100.0%）（5.7%）（46.6%）（0.0%）（0.0%）（62.3%）（59.2%）

596

180

27

321

0

6

（53.3%）（49.9%）（46.6%）（78.7%）（0.0%）（75.0%）

207（0.0%） （100.0%） （100.0%）（46.7%）(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 percentages to the total number of each proposal.
(Note 4) The negative votes include 120 abstentions.

23

Total

19

0

2,052

3,327

（53.4%） （100.0%）（0.0%）（37.7%）（40.8%）

Review of management and investment in fiscal 2016 ｜ 4 Major Initiatives

4 Major Initiatives
Chapter1［1］Invitation of applications from and management of external asset managers① Invitation for applications for the Asset Manager Registration System
A. Invitation for applications for outsourcing foreign equity investment (passive and active investment)
To change the lineup of external asset managers entrustedwith foreign equity investment, the GPIF started inviting
applications for outsourcing foreign equity investment(passive and active investment) under the Asset Manager
Registration System in April 2016. The screening of applicants
concerning passive investment has already started.

By the end of March 2017, a total of 401 funds have applied
under the registration system, 319 for making an entry as anexternal asset manager and 82 for providing information.

B. Invitation for applications for outsourcing domestic equity investment
To enhance stewardship activities concerning domestic stock
passive investment, the GPIF started inviting applications foroutsourcing domestic equity investment in March 2017. In
the selection process, the GPIF will evaluate each applicant’sbusiness model as a whole, including the investment
process, policy for stewardship activities, organizational
systems to implement investment and stewardship activities
and the remuneration level.

C. Development of an organization and system in preparation for invitation for applications regarding investment in alternative assets
To diversify the investment portfolio, the GPIF developed
an organization and system in preparation for inviting
applications for executing multi-manager strategies
concerning alternative assets (infrastructure, private equity
and real estate) (invitation launched on April 11, 2017).

The inclusion of alternative assets, which have different
risk-return profiles compared with traditional investment
assets such as listed equities and bonds, is expected
to improve efficiency of the GPIF’s investment portfolio
through diversification.

GPIF
Monthly data

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

24

Review of management and investment in fiscal 2016 ｜ 4 Major Initiatives② Soliciting proposals for ESG Indices comprised of Japanese equities
A. Objective of soliciting proposals for ESG indices
For the GPIF as a universal owner (an investor with avery large fund size and a widely diversified portfolio), it
is a rational approach to seek to maximize its portfolio’s
investment return over the long term by minimizing negative
externalities (e.g. environmental and social issues). Taking
account of ESG issues in investment activity (ESG integration)
will increase the risk-adjusted return by reducing risks. The

GPIF believes that the longer the investment horizon is, thegreater this risk-reduction effect is.
From this viewpoint, the GPIF solicited proposals for indices thatare expected to reduce risks and to outperform benchmarks
over the medium-to long-term in order to explore the feasibilityof integrating ESG into passive investment in domestic equities.

Optimization of the investment chain expected by ESG investment
GPIF
Universal owner

Minimizing
negative
externality

Super-long-term investor

Investment and engagement

External asset manager

Mitigating
shorttermism

ESG integration

ESG index

Investment and engagement

Company

ImprovingESG
evaluation

Promoting ESG information disclosure

Boost of Japanese Equity Market
B. Solicitation process
During the solicitation period from the end of July to theend of September 2016, 14 companies including Japaneseand foreign asset managers and stock index developers
proposed 27 indices. To examine the proposed indices both

qualitatively and quantitatively, several rounds of interviews
have been conducted and the Investment Advisory
Committee has been convened seven times.

C. Emphasis on the positive impact on the entire market
In the selection process, the GPIF is considering such points
as whether the adoption of the proposed index (indices)would have a positive impact on the Japanese stock market
as a whole by improving ESG evaluation, in addition to
examining economic rationality factors, such as the riskreturn trade-off. More specifically, emphasis is placed on thefollowing points:*The selection of components of the index should bebased on public information from the perspective ofpromoting information disclosure by companies.
*Companies superior in addressing ESG issues should
be given precedence in the selection of components(positive screening).
*The selection of components should be open to a wide
range of companies.
The GPIF believes that in order to encourage companies
to be proactive in addressing ESG issues and disclosing

25

information, it is important to help them understand theprinciples of ESG evaluation and index development. To
promote the understanding, the GPIF is calling for stockindex developers to publicly disclose how they conduct ESG
evaluation and how they develop stock indices.
Expansion of
ESG investment（Investment opportunity
at low cost）

Improving
the soundness ofpension ﬁnance

Building
sustainable
society

Improvement of
ESG investment and theperformance of Japaneseequities

Increasing
incentive to enhance theresponse to ESG
by companies

Improvementof the ESG evaluationof Japanesecompanies

Review of management and investment in fiscal 2016 ｜ 4 Major Initiatives［2］Promoting fulfilment of the stewardship responsibilities

On March 22, 2016, the GPIF established the Stewardship
Enhancement Group, which was comprised of staffs ofrelevant offices and divisions, in order to conduct crossdivisional activities. In order to promote new activities basedon the building of a Win-Win Relationship in the Investment
Chain initiative, which was announced on July 28, 2016,
the GPIF upgraded this group on October 1, 2016 to the
Stewardship & ESG Division in the Public Market Investment
Department , which is comprised of seven staffs, including
two dedicated ones. The Stewardship & ESG Division willcontinue to promote stewardship activities by the GPIF
mainly by performing the following tasks from a strategic

Chapter1① Establishment of the Stewardship & ESG Divisionperspective: (i) considering how the GPIF should fulfil the
stewardship responsibilities as an institution responsible forpension fund management and specifically what activities itshould conduct; (ii) considering how to analyze and evaluate
the status of stewardship activities that give consideration
to ESG (environmental, social and governance) issues,
including activities by external asset managers entrusted withdomestic and foreign equity investment; and (iii) promoting
collaboration with Japanese and foreign institutional
investors and organizations involved with the Principles for
Responsible Investment through an international network.

② Initiative to build a win-win relationship in the investment chain
In order to energize the investment chain so that theinvestment return for the beneficiaries can be increased
over the medium-to long-term, the GPIF has establishedthe Business and Asset Owners’ Forum, whereby opinionsfrom companies can be collected on a regular basis, and
the Global Asset Owners’ Forum, whereby opinions can beexchanged with asset owners from abroad.

A. Holding the Business and Asset Owners’ ForumIn a questionnaire survey conducted with listed companies
in January 2016, many companies expressed hopes tohold meetings with asset owners. As a result, the GPIF has
been holding meetings with those companies on a regularbasis. Several companies, including Omron Corporation,
Eisai Co., Ltd. and Nissan Motor Corporation, proposed
the establishment of a regular platform for constructive
exchange of opinions between the GPIF, as an asset owner,and companies. In response, the first Business and Asset
Owners’ Forum was held on September 1, 2016, with theparticipation of a total of eight companies, including those
three companies as the co-organizers.

At this forum, the participants discussed topics such as
strategies for improvement of corporate value, “engagementthat encourages constructive engagement” from companies’
perspective, and expectations and requests for asset
owners, including a request for GPIF to set forth the proxyvoting principles. As the opportunity to listen to companies’
voices is very useful for the GPIF to fulfil its stewardship
responsibilities, the GPIF will continue to hold the Businessand Asset Owners’ Forum. The opinions conveyed to the
GPIF will be fed back to external asset managers andoverseas asset owners as well so that the whole investment
chain can be improved and optimized.

B. Holding the Global Asset Owners’ ForumThe Global Asset Owners’ Forum was established with theaim of creating a regular platform for exchange of opinionswith overseas public pension funds and other asset owners
advanced in the field of stewardship accountability so that
the GPIF can better fulfil its stewardship responsibilities forthe beneficiaries by incorporating sophisticated expertise.
On November 14, 2016, the first Global Asset Owners’
Forum was held with the GPIF, CalSTRS (California State
Teachers' Retirement System) and CalPERS (California Public
Employees' Retirement System) as the co-organizers.

26

Review of management and investment in fiscal 2016 ｜ 4 Major Initiatives

At this forum, the GPIF discussed the following matters with
12 overseas public pension funds: the need for sharing bestpractices to align the interests of asset owners with thoseof asset managers and sharing knowledge and experience

concerning ESG (environmental, social, and governance)
issues; and joint utilization of legal networks and researchand study. A summary of the discussions was published.

③ Conducting a questionnaire survey concerning stewardship activities by external asset

managers

A. Objective of the survey
65.0%). In 2017, the second questionnaire survey (the survey
subjects were companies adopted as components of the
JPX Nikkei Index 400 as was the case in the previous survey)
was conducted in order to evaluate external asset managers’
stewardship activities and examine the current status of“purposeful and constructive dialogue” (engagement) andchanges since the previous questionnaire and replies werereceived from 272 companies (response rate at 68.0%).

As the GPIF entrusts domestic equity investment of pension
reserve funds to external asset managers, it is calling for themto enhance stewardship activities. In line with this initiative,
in 2016, the GPIF conducted its first questionnaire survey
with listed companies with respect to institutional investors’
stewardship activities (the survey subjects were companies
adopted as components of the JPX Nikkei Index 400) andreceived replies from 260 companies (response rate at

B. Summary of the results of the questionnaire survey
A large majority of the respondent companies recognizedsome positive changes in institutional investors’ activities
since the previous survey but failed to see a significant
change in their preparations for IR meetings or their useof corporate governance reports. As was the case in theprevious survey, many respondents expressed expectations
for institutional investors in general to adopt a medium- tolong-term approach to investment and dialogue. However,there was a notable increase in the proportion of companies
expressing expectations for debate and understanding on
ESG issues and non-financial information.

Expectations for GPIF

Expectations for institutional investors

Mid- to long-term
viewpoint

GPIF's inﬂuenceon its external
asset managers

30.8

Appropriate evaluationand education

18.5

Dialogues

17.1

ESG

11.0

10.3

Other

10

20

19%
16%
2%
4%

(%)
30

40

(Note) Keywords cited from free descriptions in responses; multiple responses allowed

27

12%
8%

Have no expectations

16.4
0

24%
24%

Other

3.4

GPIF's inﬂuence on
the sell side

36%

Discussion andunderstanding of ESG and
non-ﬁnancial information

15.1

Mid- to long-term
viewpoint

24%

Exchange of opinions on
an ongoing basis(mutual understanding)

20.5

Direct dialogues
with investee companies

Consideration to
ESG issues

Other

Deeper understandingof investee company(reform of the approach of taking
uniform measures for all companies)

2.7

Enhancement ofstewardship activities

63%
61%

Mid- to long-term viewpoint

4.1

Governance

GPIF'sindependent
initiatives

The respondents voiced expectations for the GPIF to call for
asset managers to take a medium- to long-term approach toinvestment and dialogue, to promote its own stewardship
activities, and actively engage in direct dialogue withcompanies. Expectations were also expressed for the GPIF
to reach out to securities companies (sell-side investors) via
asset managers or to implement demonstration research
programs concerning corporate governance.

0

10

2017
2016
20

30

40

(Note) Multiple responses allowed

50

60

70

(%)

Review of management and investment in fiscal 2016 ｜ 4 Major Initiatives④ Joining the Board of the PRI Association
issues when making investment decisions. In November
2016, Hiromichi Mizuno, Executive Managing Director andChief Investment Officer of the GPIF, was elected as a newmember of the Board of the PRI Association.

Chapter1

As part of its commitment to fulfiling its stewardship
responsibilities, in September 2015, the GPIF signed thePrinciples for Responsible Investment (PRI), whereby theUnited Nations is calling for institutional investors to giveconsideration to ESG (environmental, social and governance)⑤ Joining the UK 30% Club and the US Thirty Percent Coalition
In order to collect information and expand its knowledge
concerning initiatives for promoting gender diversity carriedout at companies and institutional investors abroad, the GPIF
joined, as an observer, the UK 30% Club and the US Thirty

Percent Coalition, which have been founded with the goal of
pursuing gender diversity and enabling women to hold 30%
of board seats.

［3］Disclosure of all items of securities owned by the GPIFThe GPIF has decided to disclose all items of securities thatit owns in order to ensure the transparency of its investment.
On its way to the full disclosure, the GPIF is gradually
reducing the time lag between the timings of ownership anddisclosure with respect to domestic equities for which theshare of the GPIF’s holdings in the market is relatively large
while examining the impact of the disclosure on the market.
In the first stage, the items owned as of the end of March

2015 were disclosed in July 2016, and in the second stage,the items owned as of the end of March 2016 were disclosed
in November of the same year. In each stage, no apparent
impact of the disclosure on the market was confirmed as aresult of examination conducted through the event study
method (see the column in the next page).
When the items owned as of the end of March 2017 aredisclosed in the third stage, the impact on the market will
also be examined through the event study method.

Schedule for disclosure of securities owned by the GPIF
Gradually reduced the lag between the timings of ownership and disclosure, while examining
the impact of the disclosure on the market (through the event study method).
First stage（2016.07.29）

2015.032016.032016.072016.112015.03（2016.11.25）

2016.032016.072016.11

Third stage

Confirmed no apparent impact on
individual securities
2017.032017.07

Disclosure at a point eight months after the timing of ownership

Examined the impact of the disclosure on the market (through the event study method)（2017.07.07）

2017.07

Disclosure at a point one year and four months after the timing of ownership

Examined the impact of the disclosure on the market (through the event study method)

Second stage

2017.032015.032016.032016.072016.11

Confirmed no apparent impact on
individual securities

2017.032017.07

Disclosure at a point three months after the timing of ownership

Examined the impact of the disclosure on the market (through the event study method)

Currently, the GPIF makes disclosure in July every year to announce
the status of ownership of securities at the end of the previous fiscal year.

28

Review of management and investment in fiscal 2016 ｜ 4 Major Initiatives［4］Promoting research and study
GPIF Finance Awards
The GPIF believes that if pension reserve funds are to beinvested safely and efficiently now that investment techniques
are becoming increasingly sophisticated and financial
products are growing in diversity, it is essential to develop an
environment that encourages continuous efforts to enhanceacademic research concerning pension fund investment.
As part of an initiative to develop such an environment, theGPIF Finance Awards have been established to encourage
research activities by commending young researchers

who have made remarkable achievements in the field of
pension fund investment and by widely communicating theirachievements and the social significance of their activities.
The winner of the award was selected as follows as aresult of screening by a selection committee comprised ofDistinguished Professor Robert Merton of the MIT Sloan
School of Business (winner of the 1997 Nobel Prize ineconomics), and other eminent researchers in the field offinance.

Winner :	Tatsuyoshi Okimoto, associate professor, Crawford School of Public Policy, Australian National University andvisiting associate professor, Graduate School of International Corporate Strategy, Hitotsubashi University
Profile : 1999: Graduated from the Faculty of Economics at the University of Tokyo
2001: Acquired a master’s degree in economics from the Graduate School of Economics at the University of Tokyo
2003: Acquired a master’s degree in statistics at the University of California San Diego
2005:	Acquired a Ph.D in economics in 2005 at the University of California San Diego, and served as an associate
professor at Yokohama National University
2008: Served as an associate professor at Hitotsubashi University
2014 to date: Has held the current posts
Prize motivation :	Mr. Okimoto has achieved research results highly useful for portfolio investment based on an international
diversification strategy and is expected to continue to deliver successful results in the future.

Selection committee members
Robert Merton	Distinguished professor, MIT Sloan School of Business and professor emeritus at Harvard University
Winner of the Nobel prize in economics
Josh Lerner
Professor, Harvard Business School
Kazuo Ueda	Professor, Graduate School of Economics and Faculty of Economics, University of Tokyo (former chair of
the Investment Advisory Committee)
Yuri Okina
Vice Chairman, Japan Research Institute (member of the Financial System Council)
Shinichi Fukuda	Professor, Graduate School of Economics and Faculty of Economics, University of Tokyo (member of the
Financial System Council)
Yasuhiro Yonezawa Professor, Waseda Business School (former chair of the Investment Advisory Committee)

29Chapter1

30

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 a 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 thequality of services to be provided to the public and otheroperations, matters concerning improvement of operational

31

efficiency, 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.

［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 year ofeach 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 fact thatthe applicable law stipulates that the GPIF policy asset mix
should be established in consideration of actuarial valuationand 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 the GPIF to formulate the ORIM. This isbased on 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 style ofinvestment. 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 it promptly as deemednecessary.
(Note) See the GPIF website (http://www.gpif.go.jp/operation/policy.html) for
details of the operational policies.

32

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

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, theGPIF 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 theirrisk and return 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.
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.

33

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

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

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.

⑥ Enhancement of investment management capabilities,

improvement of operational efficiency

The GPIF is also expected to develop a comprehensive
portfolio risk management system, including alternative–
investment–specific risk management, with consideration of
cost effectiveness. The GPIF will make risk management moresophisticated by upgrading its forward–looking risk analysis
functions, risk analysis tools, information accumulation andresearch 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 costsaving 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 included in the 1.34%
cost–saving target from the following fiscal year onward.
The Objectives also call for continued efforts to reduce feesfor external asset managers, considering changes in therespective amounts of invested assets.

Chapter2

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.

34

Overview of the Government Pension Investment Fund ｜ 2 Organization and Internal Control System

2 Organization and Internal Control System［1］Organization
As of July 1, 2017, 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 104
employees (excepting one part-time employee).
The organization consists of the General Affairs
Department (General Affairs Division, Accounting Division),
Planning and Communication Department (Planning andCommunication Division, Treasury Division, Research Division),

Portfolio Risk Management Department, Information
Security Administration Department (Information Security
Administration Division, IT Administration Division),
Investment Strategy Department (Investment Strategy
Division), Investment Administration Department, PublicMarket Investment Department (Public Market Investment
Division, Stewardship & ESG Division), Private Market
Investment Department, Internal Fixed Income Investment
Department, and Internal Audit Department (to report
directly to the President).

Organization Chart (as of July 1, 2017)
Investment Advisory Committee
General Affairs
General Affairs Department

President

Accounting

Executive Managing Director(Planning and General Affairs)
Executive Managing Director(CIO)
AuditorPlanning and Communication
Chief ofstaff

Planning and Communication
Department

Treasury
Research

Portfolio Risk Management
Department

Assistant to
AuditorComplianceOfﬁcerLegal
OfﬁcerInformation Security
Administration Department

Investment Strategy
Department

Information Security
Administration
IT Administration
Investment Strategy

Investment Administration
Department

Public Market Investment
Department

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

35

Public Market Investment
Stewardship & ESG

Overview of the Government Pension Investment Fund ｜ 2 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 this mission. We also maintain a whistleblowing system and take corrective actions and preventive
measures according to our internal 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, the Internal Control Committee oversees theinternal control system, and directors, departments andpersons responsible for internal control are assigned. All
executives and employees are informed of the necessity tocomply with the Investment Principles and Code of Conduct
and to 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.

Chapter2

Regarding investment risk management, the Investment Risk
Management Committee monitors and manages various
risks, and 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 mati c Di 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[Performance
evaluation](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

Hearing

Reports,
opinions

Consultation Approval

Board of Audit《Audit》

Medium-term plan

・Executive Managing Director(Planning and General Affairs)

・Executive Managing Director (CIO)

President

AuditorContract Monitoring
Committee

Assistant to
AuditorMembership consisting ofexperts and others

Annual plan

(GPIF Internal Controls Auditing Standards)

Operational effectiveness and fﬁciency securing system

Contract inspection,review

Risk of losses management system

Internal Control Committee

Investment Risk Management Committee

Management and Planning Committee

Account auditor

Internal Control Committee

Investment Committee《External audit》

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 Audit
Dept.

Internal Fixed Income
Investment Dept.

Private Market
Investment Dept.

Investment
Administration Dept.

Investment Strategy
Dept.

Information Security
Administration
Dept.

Whistle-blowing system*2
Portfolio Risk
Management Dept.

Whistle-blowing
liaison (Legal Counsel)

General Affairs
Dept.

Compliance Committee

Planning andCommunication Dept.

*1

Legal Ofﬁcer

Public Market
Investment Dept.

Compliance Ofﬁcer

Internal Control Committee

Advisory Council
Social Security*3*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,
and Information Security
Administration 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.

36

Overview of the Government Pension Investment Fund ｜ 3 Investment Advisory Committee

3 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.
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.
All members of the Investment Advisory Committee
comprise the Governance Council, which is in charge ofmaking proposals regarding the GPIF Investment Principles
and the Code of Conduct and monitoring their status ofcompliance, among other duties.

Members of Investment Advisory Committee  ◦ Tomio Arai	Professor Emeritus, The University of Tokyo

Takashi Inoue

Managing Director, Japan Business Federation (From Jun.28, 2017)

Hiromichi Oono ember of the Board & Corporate Vice President Ajinomoto Co., Inc.
M
(Until Jun.27, 2017)

Yasuyuki KatoProfessor, Graduate School of Management, Kyoto University

Setsuya Sato rofessor, Department of Global Innovation Studies, Faculty of Global
P
and Regional Studies, Toyo University○ Junko Shimizu*

Professor, Faculty of Economics Gakushuin University

Isao Sugaya

 anaging Director, JTUC Research Institute for Advancement of Living
MStandards

Yoko Takeda

 hief Economist
C
Deputy General Manager, Research Center for Policy and Economy,
Mitsubishi Research Institute, Inc.

(Note 1) Committee members are listed in order of the Japanese syllabary.
(Note 2) ◦ indicates Chairman; ○indicates Vice Chairman.
(Note 3) * indicates Chairman of Governance Council.

37

Overview of the Government Pension Investment Fund ｜ 4 Revision of GPIF Law

4 Revision of GPIF Law
In order to ensure the establishment of an organizational
system that can be better trusted by the general public at the
GPIF and safer and more efficient management of pension
reserve funds, the Bill to Partially Revise the National Pension
Act, etc. to Enhance the Sustainability of the Public Pension
System, which includes the reorganization of the GPIF, wassubmitted to the ordinary session of the Diet in 2016 inconsideration of the revision of Japan Revitalization Strategy

in 2014 (Cabinet decision on June 24, 2014) and debate at
the Subcommittee for Pension Fund Management of theSocial Security Council, a governmental advisory panel. The
bill was enacted in December of the same year.
Ahead of the effectuation of the revised law in October
2017, the GPIF is preparing.

(1) Shift from individual to collegiate decision-making
collegiate system under which decisions are made by theManagement Committee that is comprised of the president
and nine experts in such fields as economics, finance, asset
management and business administration.

Chapter2

Currently, the president of the GPIF has the sole decisionmaking authority concerning matters such as the formulationof the policy asset mix. Following the legal revision, thisindividual decision-making system will be replaced by a(2) Separation of Decision-Making and Supervision from Execution
To enhance the executive team’s supervisory function, thedecision-making and execution functions, which have until
now been combined by the president, will be separated,with the Management Committee taking over the functionof supervising the executive team. To ensure effective
supervision of the executive team, the Audit Committee willbe established and charged with conducting audits andoverseeing day-to-day operations. The Audit Committee willconduct supervision based on the results of its own audits,
exercising its supervisory authority independently from theManagement Committee.

(3) Diversification of investment
The scope of permitted types of derivative transactions
will be expanded while limiting the purpose of use to risk
management. In addition, the provision of call loans will

be added to the scope of permitted short-term investment
vehicles.

38