ANNUAL REPORTFISCAL YEAR 2017

Government Pension Investment FundForeword: Overview of Fiscal 2017

Summary of the major initiatives

１

Governance Reforms(Establishment of the Board of Governors and the Audit Committee)
Following the revision of the Act on the Government Pension Investment Fund in 2016, theGovernment Pension Investment Fund (GPIF) established the Board of Governors and the
Audit Committee in October 2017, with the aim of shifting from an individual to a council
decision-making system, separating decision-making and supervision from execution and［For details, refer to page 52.］
clarifying the responsibility and authority of the Executive Office.

2

Activities as a Universal Owner anda Super long-term Investor
It is essential for GPIF, as a “universal owner” (an investor with a very large fund size and awidely diversified portfolio) ※ and a “super long-term investor” (responsible for supporting
pension finance with an investment horizon of as long as 100 years), to minimize negative
externalities of corporate activities (environmental and social issues, etc.) and to promotestable and sustainable growth of the overall capital market.
※［For details, refer to page 39.］

【Promoting fulfillment of the stewardship responsibilities】

In fiscal 2017, GPIF revised the Investment Principles. Then, the scope of measures aimed atfulfilling stewardship responsibilities was expanded from equity investment to all asset classes.
［For details, refer to page 32-38.］○Establishment of stewardship principles and proxy voting principles○Endorsement to the revised Japan’s stewardship code

○Request for disclosure of the details of proxy voting records○Engagement with external asset managers / Meetings with third-party committees ofexternal asset managers○Holding the Business and Asset Owners' Forum and the Global Asset Owners' Forum○Conducting a survey of listed companies regarding institutional investors' stewardship
activities【ESG activities】
GPIF conducted stewardship activities by giving consideration to ESG (environmental, socialand governance) issues not only in equity investment but also in investment in other asset
classes such as bonds and alternative assets, with the objective of expanding medium- tolong-term investment returns of pension beneficiaries.
［For details, refer to page 39-42.］○Selected ESG indices for Japanese equities○Called for application for global environmental stock index○Joint research program to incorporate ESG factors in fixed income investment

7

Foreword: Overview of Fiscal 2017

3

Strengthening Alignment of Interest with
External Asset Managers
GPIF took various initiatives to strengthen alignment of interest with external asset managers
entrusted with investing a large part of our assets.

【Call for applications through the Asset Manager Registration System】
With objectives such as enabling a flexible review of its external asset managers, GPIF
deliberated on and introduced the Asset Manager Registration System in fiscal 2016, by whichasset managers are called for applications for executing asset management. We expanded its
scope to include external asset managers of all the four traditional asset classes: domestic andforeign bonds and domestic and foreign equities.
［For details, refer to page 43.］

○Call for applications for managers of foreign equity(passive and active investment)○Call for applications for managers of domestic equity (passive investment)○Call for applications for managers of alternative assets○Expansion of the scope of the Asset Manager Registration System to the four traditional
asset classes【Introduction of a new performance - based fee structure】
With the objectives of strengthening alignment of interest with active managers andmanaging investment capacity of active managers, GPIF introduced a full-scale
performance-based fee structure from April 2018. In addition, GPIF relaxed restrictions on
investment to allow active managers to better use their abilities to achieve target excess［For details, refer to page 45.］
return rate as expected.

【Review of assessment methods】
GPIF reviewed assessment methods for external asset managers and shifted fromcomprehensive assessment based on qualitative assessment and quantitative assessment tocomprehensive assessment based on qualitative assessment that takes into account［For details, refer to page 45-46.］
quantitative performance.

4

Progress in Alternative Investments
GPIF has been progressing in investment in alternative assets with the aim to improve theinvestment efficiency and contribute to the stability of the pension system through investment
diversification by incorporating alternative assets into its investment portfolio. In addition,
GPIF started calling for applications from external asset managers who will pursue
multi-manager investment strategies to build a portfolio of diversified investment strategies.
GPIF selected external asset managers for a global-core infrastructure mandate and for a core
strategy in Japan real estate mandate, and implemented relevant investments.
［For details, refer to page 24-31.］

8

Chapter

1 Investment Results in Fiscal 2017

1 Investment Results［1］Rate of investment return / Amount of investment returns, etc.
① Rate of investment return
12.0%

The rate of investment return for fiscal 2017 is+ 6.90 %

8.0%

3.54%

4.0%

Market Investments

FILP bonds

3.92%

2.97%

2.0%
0.0%
–2.0%
–4.0%

–3.49%–6.0%

Domesticbonds
Domestic
equities
Foreignbonds
Foreignequities
Short-term
assets

6.90%

6.58%

6.0%

due to significant gains in returns on domestic
and foreign equities.

Total

10.70%

Quarterly
Cumulative

10.0%

1stQ

2ndQ

3rdQ

4thQ

Total

20.0%

3.54%

2.97%

3.92%

–3.49%

6.90%

15.0%

–0.01%

0.16%

0.39%

0.25%

0.80%

10.0%

6.59%

4.79%

8.68%

–4.72%

15.66%

5.0%

4.45%

2.49%

1.21%

–4.28%

3.71%

0.0%

5.48%

5.55%

5.65%

–6.35%

10.15%

0.00%

0.00%

0.00%

–0.00%–0.00%

0.45%

0.45%

0.46%

0.48%

1.82%

Q1 endQ2 endQ3 endQ4 end15.66%
10.15%

6.90%

3.71%

0.80%

1.82%

– 0.00%–5.0%–10.0%

Domestic Domestic Foreign Foreign Short-term FILP
bonds equities bonds equities assets
bonds

Total

(Note 1) Fiscal 2017 is the year ended March 31, 2018.
(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 5), 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) Alternative asset funds contain a mixture of asset classes, and investment returns of such funds are allocated to each asset on a pro-rata basis according to thetargeted asset composition ratio in the investment plan at the start of investment of such funds (the same shall apply hereinafter).
(Note 5) The FILP bonds are government bonds issued to finance the Fiscal Investment and Loan Program (FILP).

② Amount of investment returns¥billion
20,000+¥10,081.0 billion
due to significant gains in returns on domestic
and foreign equities.

Market Investments

Domesticbonds
Domestic
equities
Foreignbonds
Foreignequities
Short–term
assetsFILP bonds

2ndQ

3rdQ

5,115.3

4,451.7

6,054.9 –5,540.8 10,081.0

–1.4

74.8

2,316.1
880.9

Total

112.5

362.2

1,795.9

3,407.7 –2,012.1

5,507.6

539.9

275.6 –1,022.4

674.0

1,912.4

2,034.9

0.1

0.0
6.2

176.4

2,189.9 –2,623.2
0.0
5.3

5,115.3

4,451.7

6,054.90

Q1 end

–0.0

4.5

23.2

Q3 end12,000Q4 end10,081.0
5,507.6

6,000

3,514.0362.2

0–6,000

674.0

23.2
–0.0

3,514.0–0.1

Q2 end¥billion

Domestic Domestic Foreign Foreign Short-term FILP
bonds equities bonds equities assets
bonds(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

10,081.0

9,566.9–5,540.8

1stQ

7.2

4thQ

10,000–10,000(Unit : ¥billion)

Total

15,621.9

Quarterly
Cumulative

The amount of investment returns
for fiscal 2017 isTotal

③ Cumulative returns and asset size since fiscal 2001
Chapter1

Cumulative returns from fiscal 2001 to fiscal 2017 are+¥63,441.3 billion

and the value of investment assets at the end of fiscal 2017 is¥156,383.2 billion
Cumulative return¥billion

70,000+63,441.3

60,000+50,733.8

50,000+53,360.3+45,423.9

40,000+35,441.5

30,000+25,220.9+17,370.3

20,000+13,425.8
10,000+11,852.5+11,389.4+4,463.8+1,851.1+2,504.3

0–587.4–10,000+13,998.6+11,689.3–3,040.5

FY2001

FY2002

FY2003

FY2004

FY2005

FY2006

FY2007

FY2008FY2009FY2010FY2011FY2012FY2013

FY2014FY2015FY2016FY2017

Asset size

¥billion

180,000
Market Investments

160,000

156,383.2

FILP bonds

140,000
120,000

119,886.8 117,628.6

FY2006

FY2007

FY2009116,317.0 113,611.2 120,465.3

FY2010126,577.1

137,476.9 134,747.5

102,871.4

100,000

87,227.8

80,00070,341.1

60,00040,000114,527.8

122,842.5

144,903.4

50,214.3
38,601.4

20,0000

FY2001

FY2002

FY2003

FY2004

FY2005

FY2008FY2011FY2012FY2013

FY2014FY2015FY2016FY2017(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

Investment Results in Fiscal 2017 ｜ 1 Investment Results④ Investment income
The returns on investment assets are valued at market prices and can be classified into investment income(interest dividend income) and capital gains and losses (realized and unrealized gains or losses due toprice fluctuations). Investment of pension reserve is intended to deliver stable returns in accordancewith a policy asset mix established from a long-term perspective. Therefore, investment income, which is
generated in a stable stream from holdings of investment assets, is important. In particular, market pricefluctuations may cause capital losses in the short term, while investment income is relatively immune tosuch changes and continues to bring profits constantly.
The breakdown of investment income shows that the proportion of investment income from domestic andforeign equities has been rising while that from domestic bonds has been decreasing in recent years.
In fiscal 2017, the total amount of investment income was¥2,778.9 billion (rate of return: +1.78%),

and the cumulative amount of investment income for the 17 years since fiscal 2001,
when GPIF started managing pension reserve, was¥30,859.7 billion (rate of return: +1.60%).

Cumulative returns and investment income since ﬁscal 2001

¥billion

70,000+63,441.3

60,000+53,360.3+50,733.8

50,000

Cumulative returns

40,000+45,423.9+35,441.5

30,000+25,220.9

20,000+17,370.3+4,463.8+1,189.6 +2,021.1+537.80−587.4–10,000+1,851.1+3,127.0

FY2003

FY2004

FY2002

FY2005

Foreign bonds

FY2006

Domestic bonds

1.67%

1.39%

1.30%

1.27%

FY2011

1.79%

308.8
398.3

1.18%
263.7

1,250

210.6

1,000
107.2
69.6 135.7
77.8 99.2
64.4

750
45.4
54.4
44.7
390.5

439.0

488.5

FY2001

FY2002

FY2003

FY2012(cumulative)

FY2013

FY2014FY2015FY2016FY2017

162.2

247.7

192.8
123.9

165.3

338.5

%

1.89%

301.1

399.5

266.3

401.4
234.3

1.64%

353.1
266.0

244.1

323.5
331.1
303.2

360.4
320.0
324.8

438.1

383.8
366.6

626.3

720.8

FY2004

FY2005

FY2006

1,038.4

FY20071,225.7

FY20081,255.9

FY20091,180.9

FY20101,076.1

FY2011968.3

FY2012952.4

FY2013

753.4

1.60
1.40

530.0

1.20
420.4

445.7

210.2

827.5

2.00
1.80

869.9
771.4

292.4

1.78%
1.75%

1.69%

1.79%
1.64%

1.31%

1,500

11

Investment income

1.80%

318.3

500

FY2010

1.43%

1,750

0

FY2009Investment income

2,000

250

FY2008

1.87%

2,500
2,250

FY2007

Domestic equities

2,750+30,859.7

Rate of return, returns (Investment income)

Foreign equities

3,000+28,080.8−3,040.5

FY2001¥billion+23,005.0+14,602.6+12,509.4+11,852.5+18,610.7+10,315.7+13,998.6+11,389.4+11,689.3+4,474.9+8,116.4+6,115.5+2,504.3+13,425.8

10,000+20,751.8+16,636.7+25,547.4

490.4

517.8

628.2

1.00
0.80

607.5

684.3

782.4

0.60
0.40

855.1

FY2014

672.3

577.9

498.4

FY2015FY2016FY20170.20
0.00

Investment Results in Fiscal 2017 ｜ 1 Investment Results(Unit : ¥billion)
Cumulative FY2001 FY2002 FY2003 FY2004 FY2005 FY2006 FY2007 FY2008 FY2009 FY2010 FY2011 FY2012 FY2013 FY2014 FY2015 FY2016 FY2017

390.5(1.49%)

439.0(1.26%)

488.5(1.03%)

626.3(1.03%)

720.8(1.10%)

827.5(1.12%)

1,038.4(1.21%)

1,225.7(1.41%)

1,255.9(1.51%)

1,180.9(1.52%)

1,076.1(1.50%)

968.3(1.30%)

952.4(1.36%)

855.1(1.51%)

672.3(1.27%)

577.9(1.21%)

498.4(1.12%)

Domestic
equities

5,233.1(1.53%)

44.7(0.65%)

64.4(0.87%)

99.2(0.83%)

123.9(1.00%)

165.3(0.87%)

210.2(1.10%)

244.1(1.77%)

266.3(2.34%)

234.3(1.59%)

266.0(1.98%)

303.2(2.14%)

324.8(1.85%)

366.6(1.76%)

445.7(1.41%)

607.5(1.99%)

684.3(1.95%)

782.4(1.92%)

Foreignbonds

5,690.9(3.27%)

54.4(4.04%)

77.8(3.06%)

135.7(3.43%)

192.8(3.33%)

247.7(3.28%)

338.5(3.73%)

399.5(4.13%)

398.3(3.98%)

401.4(3.96%)

353.1(3.75%)

331.1(3.33%)

320.0(2.71%)

383.8(2.74%)

420.4(2.31%)

490.4(2.59%)

517.8(2.63%)

628.2(2.63%)

Foreignequities

6,125.8(2.19%)

45.4(1.19%)

69.6(1.56%)

107.2(1.81%)

162.2(1.99%)

210.6(1.96%)

263.7(2.09%)

318.3(2.92%)

308.8(3.40%)

301.1(2.27%)

292.4(2.23%)

323.5(2.48%)

360.4(2.42%)

438.1(2.22%)

530.0(1.76%)

771.4(2.48%)

753.4(2.16%)

869.9(2.25%)

Total

30,859.7(1.60%)

537.8(1.39%)

651.8(1.30%)

831.4(1.18%)

1,106.0(1.27%)

1,347.9(1.31%)

1,640.7(1.43%)

2,000.8(1.67%)

2,199.4(1.87%)

2,193.7(1.79%)

2,093.2(1.80%)

2,034.1(1.79%)

1,973.9(1.64%)

2,141.1(1.69%)

2,253.2(1.64%)

2,542.4(1.89%)

2,533.4(1.75%)

2,778.9(1.78%)

Chapter1

Domestic 13,794.0
bonds(1.29%)(Note 1) Due to rounding, the total sum of the figures in individual fiscal years does not necessarily match the cumulative amount of investment income.
(Note 2) The figures for domestic bonds include investment income from FILP bonds (including convertible corporate bonds only in fiscal 2001), while the total includes
investment income 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 is3.39 %

3.01 %

for the 17 years since fiscal 2001

for the 12 years since GPIF was established as an incorporated 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 net investment yield on the pension reserve less the nominal wage growth rate since public pension benefits are indexed to the wage until
retirement and to the CPI afterwards.

GPIF’s investment performance(Unit : %)12 years Last 17 years
FY2001 FY2002 FY2003 FY2004 FY2005 FY2006 FY2007 FY2008 FY2009 FY2010 FY2011 FY2012 FY2013 FY2014 FY2015 FY2016 FY2017 Last(annualized) (annualized)
Performance

Nominal investment return(After deducting interest on debts,
investment management fees, etc.)–4.01 –6.69

7.61

2.91

9.57

3.52 –4.69 –7.61

7.88 –0.27

Nominal rate ofincrease in 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

2.29 10.21

0.68 –0.21
2.51

8.62 12.24 –3.84

5.82

6.86

3.24

2.78

0.21

0.13

0.50

0.03

0.41

–0.14

–0.22

9.98

8.48 11.14 –4.31

5.79

6.43

3.39

3.01

0.99

Investment return target assumed in the MHLW’s actuarial valuation(Unit : %)Yields used in
actuarial valuation

FY2001 FY2002 FY2003 FY2004 FY2005 FY2006 FY2007 FY2008 FY2009 FY2010 FY2011 FY2012 FY2013 FY2014 FY2015 FY2016 FY2017 Last 12 years Last 17 years(annualized) (annualized)
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

Nominal rate ofincrease in 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

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

1.88 2.17 2.57
1.61 1.88 2.13
2.47 2.52 3.56
1.00
1.63 2.27 2.86
–0.59 –0.35 –0.99
0.34–0.02 –0.39 –0.73

1.34

2.11
2.02
2.34
2.19
–0.22
–0.16

2.15
2.09
2.05
1.95
0.09
0.14

12

Investment Results in Fiscal 2017 ｜ 1 Investment Results⑥ 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)

8.70%

outside：ﬁscal 2017

Domestic
bonds

25 %

Foreignequities35 %( ± 8%)

23.88 %

15
%
±
(

4%)

27.50%( ± 10 % )25 %( ± 9%)

Foreignbonds

Domestic
equities

14.77%

25.14%

Market value(¥billion)

Allocation of
Policy asset mix (B)pension reserve(A)Deviation (A–B)

Domestic bonds

44,517.8

27.50%

35%(±10%)−7.50%

Market investments

43,621.4

26.95%−−(Book value)

896.4

0.55%

−

−

(Market value)(972.7)−−−

Domestic equities

40,699.5

25.14%

25%(±9%)0.14%

Foreign bonds

23,910.9

14.77%

15%(±4%)−0.23%

Foreign equities

38,662.9

23.88%

25%(±8%)−1.12%

Short–term assets

14,084.4

8.70%

−

−

Total

161,875.5

100.00%100.00%

−

FILP
bonds

(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 pension reserve as a whole include reserves managed under a special account as of the end of fiscal 2017 (about ¥5.5 trillion), this amount isprior to adjustment 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 0.13% (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 2017
(Unit : ¥billion)

Allocated/withdrawn

13

Domestic bonds

Domestic equities

Foreign bonds

Foreign equities−3,738.4+21.2+3,556.1+225.2(Note 1) Each number shows the net rebalancing amount.
(Note 2) Redemptions and coupon revenue of the Special Fundfor cash outflow were ¥3,225.4 billion. Redemptions andcoupon revenue of the Special Fund for FILP bonds were¥774.0 billion.

Investment Results in Fiscal 2017 ｜ 1 Investment Results⑦ Factor analysis of difference from compound benchmark return
against a compoundbenchmark return of

6.90%

7.26%

representing an
excess rate of return of–0.37%,

Chapter1

In fiscal 2017,the rate of returnon all investment assets came to.

Taking the average for the 12 years since the GPIF's establishment in fiscal 2006,
the compound benchmark
and the excess
the total rate of return onrate of return was
all investment assets was
return rate was

3.24%

3.23%

,

+0.00%,, respectively.

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.
Factor resulting from differences between the actual rate of return on each asset and the(ii) Individual asset factor : corresponding benchmark rate of return.
: Factors involving both the asset allocation and individual asset factors and calculation errors (Note)(iii) Other factors(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 fiscal 2017, the rate of return attributable to asset allocation
factors was -0.36%. Short-term assets, which delivered
lower returns, were overweight, due to continued cash
inflow against assumptions resulting from a return of thesubstitutional part of Employee’s Pension Fund, etc. as wellas based on GPIF’s investment decision. The rate of return
attributable to individual asset factors was +0.00%.

Factor analysis of the difference from the compound benchmark return in fiscal 2017
Rate of return
Total
Domestic bonds
Domestic equities
Foreign bonds
Foreign equities
Short–term assets

Factor analysis of excess rate of return

Return of GPIF

Benchmark returnon each asset

Excess rate of
returnAsset allocation
factor (1)Individual asset
factor (2)Other factors(including error)(3)(1)+(2)+(3)+6.90%+0.83%+15.66%+3.71%+10.15%-0.00%+7.26%+0.77%+15.87%+4.23%+9.70%-0.00%–0.37%+0.06%–0.21%–0.52%+0.46%
0.00%–0.36%+0.16%–0.03%+0.02%–0.06%–0.45%+0.00%+0.02%–0.05%–0.08%+0.11%
0.00%–0.01%–0.00%+0.00%+0.00%–0.00%
0.00%–0.37%+0.18%–0.08%–0.06%+0.05%–0.45%(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 2006 to 2017)
Rate of return
FY2006~FY2017
FY2006
FY2007
FY2008FY2009FY2010FY2011FY2012FY2013
FY2014from Apr.1 to Oct.30
FY2014from Oct.31 to Mar.31,2015
FY2015FY2016FY2017

Factor analysis of excess rate of return
Excess rate of
return+0.00%–0.08%+0.13%+0.88%–0.63%–0.23%–0.27%+1.24%+0.90%

Asset allocation
factor (1)+0.00%–0.06%+0.17%+0.90%–0.70%–0.26%–0.19%+1.40%+0.92%

Individual asset
factor (2)+0.01%–0.00%–0.02%–0.12%+0.08%+0.12%–0.01%+0.03%–0.06%

Other factors(including error)(3)–0.01%–0.02%–0.02%+0.11%–0.01%–0.09%–0.07%–0.19%+0.04%(1)+(2)+(3)

3.24%
4.56%
–6.10%–7.57%
7.91%–0.25%
2.32%
10.23%
8.64%

Benchmark returnon each asset
3.23%
4.64%
–6.23%–8.45%
8.54%–0.02%
2.59%
9.00%
7.74%

3.97%

3.50%

+0.46%+0.47%–0.03%+0.02%+0.46%

Return of GPIF

+0.00%–0.08%+0.13%+0.88%–0.63%–0.23%–0.27%+1.24%+0.90%

8.19%

9.98%

–1.78%–1.99%+0.01%+0.19%–1.78%–3.81%
5.86%
6.90%–3.81%
6.22%
7.26%+0.00%–0.37%–0.37%+0.21%–0.66%–0.36%–0.15%+0.33%+0.00%–0.06%–0.04%–0.01%+0.00%–0.37%–0.37%(Note 1) The annual rate of return of GPIF’s investment and benchmark rate of return represent the geometric mean of the rates of return in individual fiscal years (an annualize rate).
(Note 2) For the period from fiscal 2006 to 2007, analysis of the difference between the rate of return on market investments (time-weighted rate of return) and the compoundbenchmark 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 2006 to 2007, the rate of return for GPIF (overall assets) represents the geometric mean of the rates of return on market investments inindividual fiscal years, and for the period from fiscal 2008 onwards, it represents the geometric mean of the modified total returns in individual years.
(Note 4) The figures for the period from fiscal 2008 onwards also reflect the rate of return on FILP bonds.

14

Investment Results in Fiscal 2017 ｜ 1 Investment Results⑧ Fees and expenses¥48.7 billion

In fiscal 2017, total fees were

0.03%

The average rate of the total fees against
the investment assets for fiscal 2017 was

Total fees rose by ¥8.7 billion from the previous fiscal year, due to an increase in investment assets,
but the average fee rate against investment assets was lower than that of overseas public pension funds.

Management and custodian fees
0.10
Management and custodian fees（¥billion,left scale）

50.0

30.9
0.03

0.07

34.3

0.06

28.8

30.0
20.0

0.08

40.0

38.3

40.0

0.09

48.7

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

0.03

29.1

25.8

0.02

24.6
0.02

0.02

23.1

22.2

0.02

0.02

0.05

25.3
0.03

0.03
0.02

0.03

0.02

0.04
0.03
0.02

10.0

0.01
0.0

平均残高
（兆円）

FY2006

FY2007

FY2008FY2009FY2010FY2011FY2012FY2013

FY2014FY2015FY2016FY2017

107.7

120.2

119.6

123.9

118.1

112.0

111.5

123.9

131.9

139.0

137.3

155.7

Fees by asset class

0.00(Unit : ¥billion)

FY2006 FY2007 FY2008 FY2009 FY2010 FY2011 FY2012 FY2013 FY2014 FY2015 FY2016 FY2017

30.9

34.3

28.8

25.8

24.6

23.1

22.2

25.3

29.1

38.3

40.0

48.7

Domestic bonds

8.5

10.2

10.0

7.1

6.7

6.4

4.7

3.6

3.8

3.8

3.9

4.0

Domestic equities

9.8

9.6

7.0

6.6

6.5

6.2

5.9

7.8

5.7

8.3

8.8

10.6

Foreign bonds

4.9

6.3

6.1

6.0

5.6

5.2

5.7

6.8

8.5

9.1

12.5

17.2

Foreign equities

7.7

8.2

5.6

6.1

5.8

5.3

6.0

7.2

11.2

17.0

14.9

16.9

Total

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

Average rate of fees against externally managed assets(Unit : %)FY2006 FY2007 FY2008 FY2009 FY2010 FY2011 FY2012 FY2013 FY2014 FY2015 FY2016 FY2017

0.03

0.03

0.02

0.02

0.02

0.02

0.02

0.02

0.02

0.03

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

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

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

0.08

Foreign equities

0.07

0.06

0.06

0.05

0.05

0.04

0.04

0.04

0.05

0.05

0.05

0.04

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

155.7

Total

(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 (%)

Management and custodian fees (¥billion)

60.0

Investment Results in Fiscal 2017 ｜ 1 Investment Results

Chapter1(Column) Comparison of Investment Cost between GPIF and Major Overseas
Public Pension Funds
GPIF’s investment cost averaged 0.05% over the past 12 years, which is lower than that of overseas public pension
funds. The investment cost data of overseas public pension funds represents the average figure of the following nineinstitutions (Note 1).
The reasons for GPIF’s low investment cost are: (1) the majority of GPIF’s holdings are allocated to passive funds.
Since a large portion of investment cost accounts for the management and custodian fees, and those for passive
funds are economical, the average fee rate against investment assets is low.

Time-series data of investment cost

1.20%
1.00%
0.80%
0.60%
0.40%
0.20%
0.00%
FY2006

FY2007GPIF

FY2008FY2009FY2010FY2011FY2012FY2013Major Overseas Public Pension Funds

FY2014FY2015

Maximum

FY2016FY2017

Minimum(Note 1) Canada Pension Plan Investment Board (CPPIB: Canada), The Government Pension Fund Global (GPFG: Norway), California Public Employees’
Retirement System (CalPERS: the U.S.), California State Teachers’ Retirement System (CalSTRS:the U.S.), Swedish National Pension Fund (AP1, AP2,
AP3, AP4: Sweden) and National Pension Service (NPS: South Korea)(Note 2) Investment cost includes investment management fees and general and administrative expenses under operational expenses.

16

Investment Results in Fiscal 2017 ｜ 1 Investment Results［2］Portfolio risk management
The purpose of investment management of pension
reserve is to contribute to stable management of public
pension scheme into the future through stable and efficientmanagement from a long-term perspective solely for thepension beneficiaries. Based on this principle, GPIF performs
portfolio risk management in accordance with the following
basic policies.

(1) GPIF formulates the policy asset mix and appropriately manages it to ensure the achievement of investment return
required for the pension finance with the minimum risk.
(2) GPIF adopts a basic principle for risk management of diversifying investment portfolios across multiple asset classes
with different risk-return profiles, etc.
(3) GPIF performs risk management at each level of the overall asset portfolio, asset class, and external asset manager,etc., as well as ensuring the achievement of the benchmark rate of returns for each asset class.
(4) G PIF carries out flexible investment based on a proper outlook for the market environment, within a permissible
range of deviation for the policy asset mix, upon thorough analysis on the current trends marked by the fast-changing
economic and market environment. Meanwhile, GPIF’s investment should not, by any means, be based on a speculative
outlook on the market environment but a highly reliable one.
(5) Although there are short-term fluctuations in market prices, GPIF aims to earn investment returns more stably andefficiently by taking advantage of its long-term investment horizon and maintain the liquidity necessary for a pension
payout. In order to assure liquidity without shortage, GPIF takes appropriate measures including selling assets smoothly
while giving consideration to market price formation, etc.
(6) Regarding investment and management of pension reserve, GPIF endeavors to strengthen its expertise, clarify thesystem of accountability, and implement thorough compliance with the duty of care and fiduciary duty of a prudent
expert.
Risks subject to our portfolio risk management are market risk, liquidity risk, credit risk, and country risk.
Market risk

The risk of changes in the value of portfolio assets, including derivatives, due to fluctuations in various
market risk factors such as interest rates, foreign exchange rates, equities, and alternative assets

Liquidity risk

The risk of facing a difficulty in securing necessary funds or incurring losses due to being forced
to raise funds at an interest rate significantly higher than normal, resulting from reasons such as an
unexpected increase in cash outflow (cash management risk) and the risk of incurring losses resulting
from the inability to conduct market transactions due to confusion in the market or being forced to
conduct market transactions at prices significantly disadvantageous than normal (market liquidity risk)

Credit risk

The risk of incurring losses due to reduction or elimination of the value of assets, including derivatives,
due to factors such as deterioration in the financial position of issuers of the portfolio assets, institutions
entrusted with asset management, etc. or counterparties of derivatives transactions

Country risk

The risk of incurring losses in foreign assets due to foreign currency situations or political and economic
conditions of countries relevant to the said assets

Regarding the process for managing the above portfolio
risks, GPIF makes necessary decisions on risk control
upon grasping risks based on measurements on tracking
error, Value at Risk (VaR), and stress test outcomes, etc.
and qualitative information and performing periodic risk
monitoring and reporting.
The Executive Office monitors and reports risks mainly
at the Portfolio Risk Management Committee and holds
deliberations on risk control at the Investment Committee.
In addition, the Board of Governors receives reports from17

the Executive Office and deliberates on important mattersrelated to portfolio risk management.
In fiscal 2017, following the full-scale implementation of
the total risk management system (Note), GPIF conducted
VaR analysis, stress tests based on past events and virtual
scenarios and analysis of profit and loss simulation of changes
in interest rates and equity prices, and implemented moreadvanced, dual-track portfolio risk management. From the
aspect of credit risk management, we conducted credit risk
analysis for relaxing restrictions on active bond investment

Investment Results in Fiscal 2017 ｜ 1 Investment Results

risk review on candidates for external asset managers inaccordance with the framework of portfolio risk management
established in the previous fiscal year.
Chapter1

and verified the impact of such relaxation of restrictions. In
addition, following the elimination of investment restrictions
by country, we reviewed the framework of country risk
management by taking measures, such as providing country
ratings and introducing credit exposure management by
country rating. As for alternative assets, we performed a(Note) A total risk management system is a system designed to analyze theportfolio risk of investment assets, made up of four traditional asset classesof domestic and foreign bonds and domestic and foreign equities, as well
as alternative assets.

(Column) Investment Amount Classified by Country
Top 15 countries by amount invested as of the end of March 2018 are as follows.

③United Kingdom (¥trillion)⑫Netherlands (¥trillion)

1.5

3.8

0.5

1.0

⑤ Germany (¥trillion)

0.5⑧Canada (¥trillion)

1.4 2.6 1.3

2.3

0.6

1.7
1.2

⑬South Korea (¥trillion)
0.1
0.8①Japan (¥trillion)

0.7⑮ Belgium(¥trillion)
0.1
0.6⑩Switzerland (¥trillion)
0.0

Bonds

1.2

0.5

1.1
⑨ China (¥trillion)

0.0
1.6

44.5

Total

85.2

⑭Mexico(¥trillion)
0.1
0.7

Equities

40.7

0.5

1.6
②United States (¥trillion)④France (¥trillion)⑦ Spain(¥trillion)

1.8
1.4

9.4

⑥ Italy (¥trillion)

0.4

2.1

3.6 1.5

0.3
2.4
2.0

⑪Australia (¥trillion)
0.3
1.1 0.8

31.2
21.8(Note 1) Classifications of countries are determined by countries of issuers for bond investment and by MSCI Country Classification for equity investment.
(Note 2) The figure for China excludes that for Hong Kong.

Asset Allocation, Tracking Error and VaR
Changes in asset allocation during fiscal 2017 stayed within the permissible range throughout the fiscal year.
The estimated tracking error (Note 1) of the entire pension reserve was stable throughout the fiscal year, with no major changes.
Value at Risk (VaR) (Note 2) of the overall pension reserve was on a downward trend over the course of the fiscal year due to a low
volatility environment in the market, even though there was a temporary increase following the sharp slide in the equity market
in February.
(Note 1) Tracking error measures the standard deviation of the difference (excess rate of return) between the benchmark rate of return and the rate of return of an investment
portfolio.
(Note 2) The largest loss likely to be suffered on an investment portfolio assuming a certain holding period with a given probability (confidence level).

18

Investment Results in Fiscal 2017 ｜ 1 Investment Results

Asset Allocation
Domestic bonds

Foreign bonds

55.0%

45.0%

35.0%

25.0%

15.0%

25.0%

Upper deviation limit

20.0%

35.00%

Actual allocation
Policy asset mix

14.77%

27.50%

Lower deviation limit

Apr

Mar

May

Jun

15.00%

15.0%

10.0%

Jul

Aug

Sep

Oct

Nov

Dec

Jan

Feb

5.0%

Mar

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

Jan

40.0%

35.0%

35.0%

30.0%

30.0%

25.14%

25.0%

25.00%

25.0%

25.00%
20.0%

20.0%

15.0%

15.0%

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Mar

Foreign equities

Domestic equities
40.0%

10.0%

Feb

Dec

Jan

Feb

10.0%

Mar

23.88%

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 and Value at Risk of overall pension reserve]
Estimated tracking error
1.5%
1.0%
0.5%
0.0%

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

Jan

Feb

Mar

Nov

Dec

Jan

Feb

Mar

VaR (Value at Risk)

Risk amount

10%

9%

8%

7%

6%

Apr

May

Jun

Jul

Aug

Sep

Oct

(Note) VaR is calculated using the delta method over a one-year holding period and two-year observation period, with a standard deviation of one (confidence level: 84%).

19

Investment Results in Fiscal 2017 ｜ 2 Status of Investment in Each Asset Class

2 Status of Investment in Each Asset Class
Chapter1［1］Domestic bonds① Excess rate of return
Concerning domestic bond investment (market investment),
the excess rate of return over the benchmark was +0.06%(+0.20% 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. In passive
investment, the return was comparable with the benchmark.
For overall domestic bond investment as well, the rate of
return was in line with the benchmark.

② Contribution analysis of excess rate of return
The breakdown of the excess rate of return (+0.06%) on domestic bond investment (market investment) by factor is as follows:
fund factors(Note 1): +0.06%; benchmark factors(Note 2): –0.00%; other factors(Note 3): –0.00%.
Time–weighted
rate of return (1)Benchmark(2)

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

Benchmark factors

Other factors

0.80%

0.74%

+0.06%+0.06%–0.00%–0.00%The excess rate of return entered positive territory mainly because the rate of return on active investment using NOMURA-BPI
plus Inflation-Linked bonds as the managers’ benchmark was higher than the rate of return of the managers’ benchmark.

Factor analysis by managers' benchmarks, etc.
NOMURA–BPINOMURA–BPINOMURA–BPI/NOMURA-BPI plus Inflation–Linked(excluding ABS) government bonds GPIF Customized infration-Linked bonds
bonds(passive)(passive)(passive)(active)(active)

Fund factors
Benchmark factors+0.00%+0.02%+0.02%+0.06%–0.00%–0.17%+0.05%+0.02%–0.01%+0.06%

Alternative(active)

Total–0.00%+0.00%+0.06%–0.00%(Note1) Fund factors refer to those 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 those 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, NOMURA–Inflation-Linked bonds (with the principal
repayment guaranteed) and NOMURA-BPI plus Inflation-Linked bonds [weighted average according to each asset type's share of the investment amount]). They arecalculated taking into consideration the market total average balance of each fund.
(Note 3) Other factors refer to calculation errors and such.

20

Investment Results in Fiscal 2017 ｜ 2 Status of Investment in Each Asset Class［2］Foreign bonds① Excess rate of return
The excess rate of return over the benchmark was –0.52%(–1.68% for active investment and +0.24% for passive
investment). In active investment, the excess return was
negative mainly because the market value composition of
EUR bonds was underweight relative to the benchmark andthe market value composition of USD bonds was overweight
relative to the benchmark. In passive investment, the excess
return was positive mainly because the market value
composition of EUR bonds was overweight relative to thebenchmark.

② Contribution analysis of excess rate of return
The breakdown of the excess rate of return (–0.52%) on foreign bond investment by factor is as follows: fund factors(Note 1):+0.22%; benchmark factors(Note 2): –0.70%; other factors(Note 3): –0.04%.
Time–weighted
rate of return (1)Benchmark(2)

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

Benchmark factors

Other factors

3.71%

4.23%

–0.52%+0.22%–0.70%–0.04%The negative excess rate of return reflected the underperformance of the managers’ benchmark for global and U.S. aggregate
investments relative to the benchmark for foreign bonds (a fund factor).

Factor analysis by managers' benchmarks, etc.
WGBI
(passive)

EuropeU.S. government
EuropeGlobalU.S.
government aggregate aggregate aggregate
1–3years(active)(active)(passive)(passive)(active)

U.S.
Inflation–
EuropeLinked high–yield high–yield(active)(active)(active)

Emerging
U.S. dollar(active)

Emerging
local currency Alternative(active)(active)

Total

Fund factors+0.08% –0.00% +0.00% +0.04% +0.03% +0.02% +0.00% –0.00% +0.00% +0.00% +0.01% +0.03% +0.22%

Benchmark factors

0.00%–0.06% +0.13% –0.55% –0.31% +0.11% –0.00% –0.06% +0.04% –0.01% +0.01%

0.00%–0.70%(Note 1) Fund factors refer to those 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 those resulting from differences in rates of return between managers' benchmarks and the benchmark (FTSE World Government Bond
Index [not incl. JPY, no hedge/JPY basis]). They are calculated taking into consideration the market total average balance of each fund.
(Note 3) Other factors refer to calculation errors and such.

21

Investment Results in Fiscal 2017 ｜ 2 Status of Investment in Each Asset Class［3］Domestic equities

The excess rate of return over the benchmark was -0.21%(+2.04% for active investment and -0.43% for passive
investment). In active investment, security selectionin the machinery, services, and precision equipment

Chapter1① Excess rate of return
sectors contributed to the outperformance relative to thebenchmark. In passive investment, the excess return was
negative reflecting the underperformance of the non-TOPIX
benchmark relative to TOPIX.

② Contribution analysis of excess rate of return
The breakdown of the excess rate of return (–0.21%) on overall domestic equity investment by factor is as follows: fundfactors(Note 1): +0.26%; benchmark factors(Note 2): –0.45%; other factors(Note 3): –0.03%.
Time–weighted
rate of return (1)Benchmark(2)

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

Benchmark factors

Other factors

15.66%

15.87%–0.21%+0.26%–0.45%–0.03%The negative excess rate of return reflected the underperformance of the returns of the NOMURA RAFI and S&P GIVI Japan,
which are managers’ benchmarks, relative to the rate of return of the benchmark for domestic equities (a benchmark factor).

Factor analysis by managers' benchmarks, etc.
TOPIX
(passive)

JPX
MSCI Japan RUSSELL/NOMURA NOMURA
Nikkei 400 Standard
Prime
RAFI
(passive)(passive)(passive)(passive)

S&P GIVI
Japan(passive)

MSCI Japan ESG MSCI Japan FTSE Blossom
Select Leaders Empowering WomenJapan(passive)(passive)(passive)

Fund factor+0.01%+0.00%+0.00%+0.00%+0.00%+0.01%+0.00%+0.00%–0.00%

Benchmark factors

0.00%–0.06%–0.04%–0.01%–0.14%–0.11%–0.02%–0.01%–0.01%

TOPIX(active)

RUSSELL/NOMURA RUSSELL/NOMURA MSCI Japan
Alternative
Small
Large Cap Value Small Cap(active)(active)(active)(active)

Total

Fund factor+0.14%+0.02%+0.09%+0.00%+0.00%+0.26%

Benchmark factors

0.00%–0.09%+0.02%+0.02%

0.00%–0.45%(Note 1) Fund factors refer to those 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 those 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 calculation errors and such.

22

Investment Results in Fiscal 2017 ｜ 2 Status of Investment in Each Asset Class［4］Foreign equities① Excess rate of returnservices sector in the developed-country markets. In theemerging-country market, the portfolio being underweightin the software and services sector in terms of the market
value composition and security selection, etc. in thetelecommunication services sector contributed negatively.
In passive investment, the return was in line with thebenchmark.

The excess rate of return over the benchmark was +0.46%(+3.16% for active investment and +0.04% for passive
investment). In active investment, the return outperformed
the benchmark because of the positive contributions of
the portfolio being overweight in the software and services
sector in terms of the market value composition relative tothe benchmark and security selection, etc. in the softwareand services sector and the healthcare equipment and② Contribution analysis of excess rate of return
The breakdown of the excess rate of return (+0.46%) on foreign equity investment by factor is as follows: fund factors(Note 1):+0.56%; benchmark factors(Note 2): –0.10%; other factors(Note 3): –0.00%.
Time–weighted
rate of return (1)Benchmark(2)

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

Benchmark factors

Other factors

10.15%

9.70%+0.46%+0.56%–0.10%–0.00%The outperformance of active investment in developed-country markets relative to the managers' benchmark (a fund factor)
made positive contributions.

Factor analysis by investment styles
ACWI(passive)

Europe&Middle East
(passive)

Emerging(passive)

Developed(active)

Emerging(active)

Alternative(active)

Total

Fund factors+0.03%–0.00%–0.00%+0.54%–0.01%–0.00%+0.56%

Benchmark factors+0.00%–0.00%+0.00%–0.17%+0.06%+0.00%–0.10%(Note 1) Fund factors refer to those 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 those resulting from differences in rates of return between managers' benchmarks and the benchmark (MSCI ACWI [not incl. JPY, JPY
basis, incl. dividends, after taking into account our dividend tax factors]). They are calculated taking into consideration the market total average balance of each fund.
(Note 3) Other factors refer to calculation errors and such.

23

Investment Results in Fiscal 2017 ｜ 3 Investment in Alternative Assets

3 Investment in Alternative Assets
Chapter1［1］Overview① Investment purpose
Alternative assets have different risk-return profiles fromtraditional investment products such as listed equities andbonds, and are less affected by price volatility in the public
equity market, etc. Considering these profiles, the inclusionof alternative assets in GPIF’s investment portfolio is expected
to improve the investment efficiency and contribute to thestability of pension finance. In addition, GPIF, as a long-term
investor, can expect a premium by taking a liquidity risk forinvestments in alternative assets.
Pension funds in other countries have been promoting
diversification by investing in alternative assets for the
aforementioned objectives and effects. Prior to starting

investment in alternative assets, GPIF carried out careful
examinations in research projects. In particular, the research
projects conducted in fiscal 2012 reported that the inclusionof alternative investments is expected to realize investment
premium for liquidity and improve the efficiency ofinvestment through diversification. By taking into accountthe results of such research projects, GPIF has increased
investments in alternative assets since fiscal 2017. The
current Medium-term Plan (from fiscal 2015 to fiscal 2019)
approved by the Minister of Health, Labour and Welfare,permits investments in alternative assets (infrastructure,
private equity and real estate) up to 5% of the total portfolio.

Alternative Assets
Infrastructure

Private Equity

Real Estate② Investment history
Based on the results of the abovementioned research
projects, GPIF has been investing in alternative assets
through a co-investment platform with institutional investors
since 2013 (in infrastructure since fiscal 2013 and in private
equity since fiscal 2015).
GPIF has continuously worked on developing andstrengthening the system for investing in alternative assets
by taking measures, such as establishing a specialized unit
(Private Market Investment Department) by employing

experts, examining investment strategy by consulting withexternal advisors (since fiscal 2015) and developing a risk
management framework. Considering that the investment
performance of alternative assets varies from asset to asset
and alternative assets have low liquidity, risk management
at the time of investment evaluation and after execution of
investment is an important issue, and we will continuallywork to strengthen the framework for investing in alternative
assets.
● Alternative Investments included in Policy Asset Mixfor Medium-term Plan(2015.4)● Appointment of external advisors for
implementation(2017.2)● Risk management framework formation(2017.3)● Research on Alternative

Investment Scheme(2013.3)

FY2012FY2013

FY2014● Infrastructure Co-Investment

Program with DBJ and OMERS(2014.2)

FY2015FY2016● Emerging Markets PE Co- Investment

Program with IFC(2015.6)● Appointment of external advisors forinvestment strategy planning(2015.10)

FY2017● Call for applicationsof Asset Managers(2017.4)24

Investment Results in Fiscal 2017 ｜ 3 Investment in Alternative Assets③ Activities in fiscal 2017
A. Call for application, selection of Gatekeepers and Fund of Funds managers
several rounds of screening of documents, interviews, andcompany visits with two external advisors(Willis Towers
Watson and Russell Investments), to carefully examine thecapabilities, investment strategies, investment track record,
and risk management system, etc. of managers.

In fiscal 2017, GPIF started calling for applications fromexternal asset managers in alternative assets by utilizing theAsset Manager Registration System and went through thescreening process for external asset managers for executing
customized multi-manager strategies (Note) for GPIF.
To select asset managers, GPIF team has been conducting(Note) A multi-manager strategy is an investment approach of investing in multiple
funds, and GPIF invests in a fund–of–funds managed by a third party manager.

(Example) Illustrative structure of infrastructure investment scheme
Asset Managers
discretionary investment
management agreement

GPIF
investment

investment
management

Fund of Funds

Gatekeeper
Selected
by GPIF

Fund of Funds
Manager

investment diversification through multiple funds

Infra Fund A

Infra Fund B

investment

investment

Infra Asset A

Infra Asset B

Infra Asset C

Infra Asset D* Investment in private equity and real estate will be executed based on similar investment scheme.

B. Development in preparation for investment in limited partnerships (LPs)In September 2017, Ordinance for Enforcement of the GPIF
Act was amended to add investment in limited partnerships(LPs) to the forms of investment GPIF is allowed to hold. The
expected benefits of investing in LPs include faster accessto information on investees and improvement of net returns
while strengthening risk management through simplified
investment scheme with fewer intermediaries involved

25

between investors and investees. Thus, investment in LPs has
been adopted by institutional investors in other countries
including pension funds as a general method of investing inalternative assets.
Following the amendment of the Ordinance, GPIF, fromfiscal 2017, sorted out its policy for resourcing staff, etc. tolaunch investment in LPs.

Investment Results in Fiscal 2017 ｜ 3 Investment in Alternative Assets［2］Infrastructure

Infrastructure investment is defined as investment ininfrastructure such as power generation facilities, electricity
transmission systems, gas pipelines or railways. Infrastructure
investment is expected to generate stable revenue over thelong term from usage fees, and therefore investment ininfrastructure funds, etc. has become one of the important
strategies for pension funds in other countries.
In particular, investment in infrastructure that is essential
for social and economic activities under a well-establishedregulatory environment by the authorities and that can be
expected to generate stable usage fees, etc. based on long-

Chapter1① Overview

term contracts is called the Core infrastructure investment.
GPIF mainly focuses on Core infrastructure at the moment.

② GPIF’s investment
A. Investment approach
GPIF aims to achieve stable returns from investment income through timely and efficient investment, in consideration of various
market conditions with the focus on diversified Core infrastructure assets.

B. Investment objectives and scheme
GPIF will mainly invest in equity stakes of operational infrastructure assets and infrastructure debt backed by the income stream
from operating infrastructure assets.

(i) Investment program launched in February 2014 – In–house investment in a unit trust
Based on the co–investment agreement with Ontario Municipal Employees Retirement System (“OMERS”), a Canadian public
pension fund with an extensive track record in infrastructure investment, and Development Bank of Japan Inc. (DBJ), GPIF has
invested in a unit trust that targets operational infrastructure assets in developed countries.

[Infrastructure investment case 1]
Thames Water Utilities Ltd. is the largest water andsewerage service company in the UK providing essential
service in London and the surrounding areas.

[Infrastructure investment case 2]
The Port of Melbourne is the largest Australian container
port located near downtown Melbourne, the secondlargest city in Australia, and it functions as a logistic hub
in the country.

26

Investment Results in Fiscal 2017 ｜ 3 Investment in Alternative Assets(ii) Investment program launched in fiscal 2017 – Based on discretionary investment  mandate(Multi-manager  investment strategy)
GPIF selected external asset managers for infrastructure investment by utilizing the Asset Manager Registration System.
Investments are conducted based on discretionary investment management agreements. Appointed asset managers
execute investment in funds in accordance with the pre-agreed investment guidelines that define investment targets, styles,
certain restrictions and risk management, etc.
Asset manager name

Investment styleGatekeeper: Sumitomo Mitsui Asset Management Company, Limited
Fund of Funds Manager: StepStone Infrastructure & Real Assets

Global–Core

Gatekeeper: Nomura Asset Management Co., Ltd.
Fund of Funds Manager: Pantheon

Global–Core

Gatekeeper and Fund of Funds Manager: DBJ Asset Management Co., Ltd.

Global infrastructure mandate focusing
mainly on opportunities in Japan[Infrastructure investment case 3]
Birmingham Airport and Bristol Airport are locatedin Birmingham, the second-largest industrial city
after London, and in Bristol in South West England,
respectively. With stable passenger traffic, these
airports are expected to generate stable revenue
form airport charges and others.

C. Investment status
The total value of GPIF’s infrastructure investment as of the end of March 2018 was ¥196.8 billion.
The breakdown of portfolio by country shows the UK with the largest share at 57%, followed by Sweden at 15% and Spain at
10%. As for the breakdown of portfolio by sector of infrastructure assets, the largest share went to port at 27%, followed by watersupply and sewerage service at 24% and electricity distribution facilities at 18%. GPIF expects stable revenue to be generated
from the diversified core infrastructure portfolio. IRR from the overall infrastructure investment for fiscal 2017 stood at 5.25% in
USD terms, and the total dividend received during the previous fiscal year was ¥3.3 billion, demonstrating stable income.
Value by Country
Finland

3%

Value by Sector

Australia

Airport

15%

21%

Spain

10%

UK
Sweden

15%

27

57%

Port

27%

Oil Pipeline

10%
Electricity
Distribution

Water Supply
and Sewerage

18%

24%

Investment Results in Fiscal 2017 ｜ 3 Investment in Alternative Assets［3］Private Equity

In private equity, GPIF invests primarily in funds with focus
on equities of private companies (private equity (PE)funds). PE funds generally seek investment opportunities incompanies at various development stages while diversifying
investment timing. Various types of PE funds include Buyout
funds (seeking to create enterprise value of investee
companies by improving post-investment management
practices and corporate governance), Growth equity funds

Chapter1① Overview(providing capital for growth and expansion of companies),
Venture capital funds (investing in start-up and early stage
companies, etc. for growth potential), Turnaround funds(seeking opportunities to turn around companies in financial
challenges through balance sheet restructuring, etc.), andPrivate debt funds (investing in debt instruments of privatecompanies). GPIF makes diversified investments in PE fundsof these types.

② GPIF’s investments
A. Investment approach
GPIF makes diversified investment primarily in equities of private companies at various stages of corporate development, suchas start-up, growth, expansion, and turnaround, in seeking for relatively higher investment returns driven mainly by enterprisevalue creation, and contribute to the improvement of GPIF’s overall portfolio returns.

B. Investment objectives and scheme
GPIF invests in equities (private equity (PE)) and debts (private debts) of private companies.

(i) Investment program launched in June 2015 – In–house investment in a unit trust
Based on the co-investment agreement with International Finance Corporation (IFC), a member of the World Bank Group,and DBJ, GPIF holds a unit trust that invests in private equities (PE) of consumer-related companies, etc. in emerging
markets. The objective is to gain investment returns from the growth of the global economy in a well-balanced mannerby adjusting the bias toward particular sectors in public equity in emerging markets and investing in consumer-relatedcompanies, etc. with high growth potential benefitted from favorable demographic shifts and economic developments down
the road.

(ii) Investment program started to be considered from fiscal 2017 — Based on discretionary investment mandate(Multi-manager investment strategy)
In the similar way as for infrastructure investment, GPIF is selecting external asset managers for private equity by utilizing
the Asset Manager Registration System. Appointed asset managers will execute investment under discretionary investment
management agreements in accordance with the pre-agreed investment guidelines that define investment targets, styles,
certain restrictions and risk management, etc.

28

Investment Results in Fiscal 2017 ｜ 3 Investment in Alternative Assets

C. Investment status
The total value of GPIF’s private equity investment as of theend of March 2018 was ¥8.2 billion. Private equity investment
generally follows a J-curve pattern (funds experience
negative returns for the first several years due to cash
outflows for investment during the initial phase of building
an investment portfolio). GPIF’s private equity investment,
likewise, recorded an internal rate of return (IRR) in USD termsof -5.85% since inception in June 2015. Given that its since

inception IRR as of the end of March 2017 stood at -14.26%,
the investment performance shows steady improvement
toward positive returns. The redemption proceeds received
in the previous fiscal year totaled ¥200 million.
The breakdown of investee companies by country and bysector are being developed as anticipated and diversified
over various sectors including growth areas such as theconsumer-related sector.

Value by Country/Region

Value by Sector

Australia 1.2%
Hong Kong 1.3%
Chile 2.8%

Others0.7%

Transportation 1.4%
Energy 3.5%
Telecommunication Services 4.8%

Others 0.7%

Consumer Staples

USA 3.5%

6.2%

I ndonesia

Consumer
Discretionary

Industrials

6.9%

China

44.2%

India

19.6%

6.6%

31.7%

Financials

9.6%

Africa19.8%

Information
Technology

16.8%

Health Care

18.7%［4］Real Estate① Overview
GPIF’s real estate investment focuses on real estate funds thatinvest in actual real estate properties such as office buildings,
commercial and logistics facilities, and rental housing.
GPIF implements an investment strategy of investing in“core” real estate properties, which are expected to generatecontinuous and stable rental income from tenants, and thisstrategy has been adopted as the major investment methodby pension funds in other countries. In the meantime, it

is important to diversify the timing of investment and thetype of investment products considering that the real estatemarket has cycles (prices fluctuate according to supply anddemand and financial market, etc.) and each investment
amount tends to be relatively large. In addition, it is necessary
to utilize asset manager and/or property manager, etc. tosustain asset value over the long term.

② GPIF’s investments
A. Investment approach
GPIF aims to earn stable returns centering on investment income by making diversified investment with the focus on core-type
real estate funds in a timely and efficient way by giving consideration to the market environment.

29

Investment Results in Fiscal 2017 ｜ 3 Investment in Alternative Assets

B. Investment objectives and scheme

Chapter1

GPIF will mainly invest in equities (equity stakes) of operational real estate and debt backed by the income stream from such realestate assets.

(i) Investment program launched from fiscal 2017 –Discretionary investment(Multi-manager investment strategy)
Through the Asset Manager Registration System, GPIF appointed Mitsubishi UFJ Trust and Banking Corporation as investment
manager for a real estate mandate in Japan in December 2017. The appointed investment manager executes investments inreal estate funds under a discretionary investment agreement in accordance with the pre-agreed investment guidelines thatdefine investment targets, styles, certain restrictions and risk management, etc.
Asset manager name

Investment style

Mitsubishi UFJ Trust and Banking Corporation

Core strategy in Japan

GPIF is in the selection process for Multi-manager for a foreign real estate mandate through the Asset Manager Registration
System in the same manner as investment in Japan and will start global real estate investment upon selecting an investment
manager.

C. Investment status
Since the start of domestic real estate investment in January
2018, GPIF has invested in eight private REITs with diversified
portfolios, and their total value as of the end of March 2018was ¥8.1 billion.
As for the breakdown of portfolio by type of asset, officebuildings accounted for the largest share at 40% of the total
portfolio, followed by logistics facilities at 23%, commercial
facilities at 15%, and rental housing at 19%.

Value by asset type: domestic real estate
Others 3%

Residential

19%

Office40%
Retail15%
Logistics

23%

30

Investment Results in Fiscal 2017 ｜ 3 Investment in Alternative Assets(Column) Private REIT market
Since the introduction of unlisted real estate investment trusts (private REITs) in 2010, both the total assets undermanagement and the number of investment managers have steadily increased to reach ¥2,439.8 billion and23 managers, respectively, as of December 2017. Private REITs make diversified investment in office buildings,
commercial and logistics facilities and rental housing, etc., and have attracted a wide variety of investors including
financial institutions, pension funds, and corporations.
Private REITs have the following characteristics: 1) unlisted, making them less sensitive to price volatility in the equity
market; 2) the liquidity of investment units is secured to a certain extent; and 3) no specified exit timing, allowing
investment with a medium- to long-term horizon.
Private REIT: Asset Amounts and Number of Private REITs

2,439.8

50
Asset Amounts (¥billion,right scale)
Number of Private REITs (left scale)40

2,018.8

963.0

20
10
0

520.8

19.4
1
2010/121,500
20

23 1,00015

58.6 2232.1
5

6

2011/122012/122013/12500

100
2014/122015/12

Private REIT: Investor Type
Others15.1%

Regional Banks

39.9%

Pension
Funds

20.5%

Megabanks,
Insurance
Companies, etc.

24.4%

(S o u r c e) A RE S

31

2,000

1,406.230

2,500

2016/122017/12Investment Results in Fiscal 2017 ｜ 4 Stewardship responsibilities

4 Stewardship responsibilities
Chapter1［1］Objectives and significance of stewardship activities
portfolio) and a “super long-term investor” (responsible forsupporting pension finance with an investment horizon of
as long as 100 years), to minimize negative externalities ofcorporate and government activities (environmental andsocial issues, etc.) and to promote steady and sustainablegrowth of the overall capital market as well as the underlying
society. GPIF makes daily transactions and investments,
except for those in some investment products, and exercise
voting rights via external asset managers. Therefore, GPIF iscommitted to conduct stewardship activities as a universal
owner and a super long-term investor and fulfill stewardship
responsibilities by promoting constructive dialogue(engagement) in consideration of ESG (environmental,social and governance) factors between its external asset
managers and investee companies, and building a win-win
relationship in the investment chain. In this chain, a long-term
improvement in corporate value would lead to growth ofthe overall economy, which would eventually enhance longterm investment returns.

GPIF, in its Investment Principles and the Code of Conduct,
stipulates that it promotes activities aimed at fulfilling its
stewardship responsibilities (hereinafter “stewardship
activities”) with the objectives of appropriately fulfilling its
responsibilities to pension beneficiaries, as their fiduciary,and expanding investment returns over the medium to longterm. The Investment Principles were partially amended in
October 2017 to stipulate that ESG factors should be taken
into consideration in stewardship activities.
As illustrated in the diagram below, GPIF assumes
stewardship responsibilities to pension beneficiaries, while
external asset managers entrusted with investment by GPIF
assume stewardship responsibilities to GPIF.
“Universal owner” and “super long-term investor” are the
keywords for GPIF to fulfill its stewardship responsibilities
appropriately. It is essential for GPIF, as a “universal owner”(an investor with a very large fund size and a widely diversified

Government Pension Investment Fund, Japan(GPIF)

Fiduciary duty

Entrust funds

Stewardship responsibility

Contribute premiums

Fiduciary duty

(via Pension Special Account)

Stewardship responsibility

EmployerPension beneficiary

IR(Investor Relations)Improve long-term returns*listed companies

Engagement

Corporate governance code

External asset
managerCompany

Stewardship code

Stewardship
activities

Enhance long-term corporate value

Sustainable growth of the economy

32

Investment Results in Fiscal 2017 ｜ 4 Stewardship responsibilities［2］Development of stewardship activities
GPIF started activities pertaining to stewardship
responsibilities on a full-scale basis with the adoption ofJapan’s Stewardship Code in May 2014. In March 2015, thefollowing year, GPIF formulated the Investment Principles,
which set down its guiding principle that GPIF is committed
to increasing investment returns over the medium tolong term for the pension beneficiaries by conducting
various activities to fulfill its stewardship responsibilities. In
September 2015, GPIF signed the Principles for Responsible
Investment (PRI) launched by the United Nations, as part ofits efforts to strengthen ESG implementation. In October
2017, GPIF revised the Investment Principles to expand thescope of activities to fulfill stewardship responsibilities, which
had been focused on equity investment, to cover all assets,

September 2015
Signed “PRI”

May 2014
Acceptance of Japan’s
Stewardship CodeMarch 2015
Announced “Investment
Principles”

Strengthen
implementationof ESGand made it clear that ESG factors should be considered in
conducting stewardship activities. As shown below, GPIF’s
stewardship activities evolved dramatically in 2017. As
for concrete stewardship activities for asset classes otherthan equity, GPIF called for applications for external asset
managers for alternative assets (private equity, infrastructure,real estate) and assessed external asset managers' efforts tofulfill stewardship responsibilities and address ESG issues inthe selection process. Also, GPIF launched a joint research
program on “Incorporating ESG factors into fixed income
investment” with World Bank Group. We will continuously
examine appropriate stewardship responsibilities for an
institution managing pension reserve and promote activities
to fulfill its own stewardship responsibilities.

June 2017
Announced “Stewardship
Principles” & “Proxy
Voting Principles”

August 2017
Endorsement to therevised Japan’s
Stewardship Code

October 2017
Revised “Investment
Principles”
Expand stewardship& ESG activities to all
asset classes

Request ESG
integration to external
asset managers

Fulfill our stewardship
responsibilities
in equity investment［3］Promoting fulfillment of the stewardship responsibilities① Establishment of Stewardship Principles and Proxy Voting Principles, and Endorsement

to the Revised Stewardship CodeA. Establishment of Stewardship Principles and Proxy Voting Principles
On June 1, 2017, GPIF established the Stewardship
Principles and the Proxy Voting Principles. The objectiveof these two principles is, as a responsibility of a superlong-term asset owner, to make clear requirements andprinciples which external asset managers should observein conducting stewardship activities, including exercise
of voting rights. GPIF requires external asset managers
to comply with these principles, and if an asset manager
should decide not to comply with any of them, it is required
to explain the rationale for the non-compliance to GPIF.
In order to fulfill its own stewardship responsibilities, GPIF
appropriately monitors the stewardship activities of external
asset managers, including the exercise of voting rights, andproactively conducts dialogue (engagement) with them. The
Stewardship Principles are comprised of the following fiveitems.

33(1) Corporate Governance Structure of Asset Managers(2) Management of Conflicts of Interest by Asset Managers(3) Policy for Stewardship Activities, including Engagement(4) ESG Integration into the Investment Process(5) Exercise of Voting Rights
In the Proxy Voting Principles, GPIF has asked its external
asset managers to formulate and publicly disclose a proxyvoting policy and guidelines that contribute to maximizing
shareholders’ long-term interests, place importance oncommunication with investee companies to ensure all voting
rights are exercised after due consideration, integrate ESG
factors into the investment process, and publicly disclose
all voting records at each investee company and for each
proposal.

Investment Results in Fiscal 2017 ｜ 4 Stewardship responsibilities

B. Endorsement to the revised Japan’s Stewardship Codeincluding approach to stewardship responsibilities, policy
regarding GPIF’s stewardship initiatives, and policy regarding
external asset managers’ stewardship initiatives, based uponwhich GPIF disclosed policies to comply with each principleof the Japan’s Stewardship Code in accordance with the
Stewardship Principles and the Proxy Voting Principles andclarified its responsibilities as an asset owner.

Chapter1

GPIF declared the adoption of Japan’s Stewardship Code on
May 30, 2014, and has since been conducting stewardship
activities. Following the revision of Japan’s Stewardship
Code on May 29, 2017, GPIF announced the approval of
the purport of the revised Code and updated the “Policy to
Fulfill Stewardship Responsibilities” on August 1, 2017. In thispolicy, GPIF set out the basic policies of stewardship activities,

C.Request for disclosure of the details of proxy voting records
GPIF jointly with other asset owners requested external
asset managers of domestic equities to publicly disclose
proxy voting records for each investee company on
individual proposal items (hereinafter, the “disclosure of
the proxy voting records”). Following these requests, GPIF
held meetings individually with its external asset managers,
where appropriate. In those meetings, GPIF explainedthat disclosing the proxy voting records without delay is of
critical importance for institutional investors to fulfill theirown stewardship responsibilities and that such disclosure is
expected to provide an opportunity for deepening dialogue

between investee companies and asset managers andrequested them to disclose their proxy voting records. GPIF
exchanged opinions with regard to the timing and methods
for disclosure as well as the methods for disclosing results incases where voting results are divided, etc. As a result, 15 of
the 16 external asset managers entrusted with investment by
GPIF have disclosed their proxy voting records. The namesof asset managers who have disclosed their proxy voting
records, as well as URLs of the websites on which the records
are disclosed, are listed in GPIF’s Stewardship Activity Reportpublished on February 2, 2018.

② Reinforcement of Engagement with Relevant Organizations
A. Engagement with external asset managers
With regard to communication with external asset managers,
GPIF has shifted from one-way annual monitoring toconstructive communication through engagement withexternal asset managers by exchanging views on stewardship
responsibilities. This change is to encourage asset managers
to exchange opinions with and give feedback to GPIF.
Specifically, whenever GPIF implements new policies orsignificant amendments, we conduct briefings for asset
managers in addition to individual meetings, providing
sufficient information on its background and our views,
with Q&A sessions and follow-up surveys. In 2017, GPIF
conducted three briefings for external asset managers
and held dialogue mainly on stewardship responsibilities,
including establishment of the Stewardship Principles andthe Proxy Voting Principles, review of the comprehensive
assessment method, and review of the performance-based

fee structure.
In addition, GPIF has changed the meeting arrangement with
its external asset managers to hold stewardship meetings
as well as meetings and questionnaires whenever there
are topics to discuss or where necessary, separately from acomprehensive assessment meeting held once a year. As
our new initiatives for the current fiscal year, we clearly statedin the Stewardship Principles that external asset managers
should integrate ESG factors in the investment process
and that they should proactively engage with investee
companies on material ESG issues. In light of the above, GPIF
confirmed material ESG issues recognized by external asset
managers entrusted with domestic equity investment. (Forthe results, please refer to [4] Material ESG issues recognizedby external asset managers on page 37.)

B. Meetings with third-party committees
Amid the development of a framework for managementof conflicts of interest, mainly among Japanese asset
managers, including the appointment of independent
outside directors, establishment of third-party committees,etc., GPIF conducted a survey on the status of “stewardship
activities and the establishment of a third-party committee
on proxy voting,” etc. targeting its external asset managers.
Following this, GPIF held meetings with the chairs of thirdparty committees and committee members with a focus on

its external asset managers of passive investment.
As a result, it was confirmed that the scope of recognitionand positioning of conflicts of interest differed significantly
among external asset managers and the selection ofcommittee members reflected the role of third-party
committees. Meanwhile, there were some external asset
managers for whom the actual conditions of operationof the third-party committee was not visible from the34

Investment Results in Fiscal 2017 ｜ 4 Stewardship responsibilities

outside. We continue our efforts to confirm that the thirdparty committees are functioning properly to ensure theprevention of conflicts of interest at external asset managers.

In addition, we continue to examine responses to external
asset managers that have not established a third-party
committee and to foreign-affiliated asset managers.

③ Initiative to build a Win-Win relationship in the investment chain
In order to energize the investment chain so that the returnfor the pension beneficiaries can be increased over the
medium to long term, GPIF holds the Business and Asset
Owners' Forum, whereby opinions from companies canbe collected on a regular basis, and Global Asset Owners'
Forum, whereby opinions can be exchanged with asset
owners from abroad. Separately from these two forums,
following the selection of ESG indices for Japanese equities

and commencement of investment linked to those indices,
GPIF gave presentations, etc. at the ESG Investment
Forum (sponsored by Keidanren, Japanese Trade Union
Confederation, Japan Association of Corporate Executives,
Japan Chamber of Commerce and Industry, Japan
Exchange Group, Inc./Tokyo Stock Exchange, Inc.) held in
July 2017 and at other conferences, in an effort to enhancecommunication.

A. Business and Asset Owners' ForumIn a questionnaire survey conducted with listed companies
in January 2016, many companies requested to havemeetings with asset owners. As a result, GPIF has been
holding meetings with those companies on a regular basis.
Several companies proposed the establishment of a regularplatform for constructive exchange of opinions between
GPIF, as an asset owner, and companies. In response, the first
Business and Asset Owners’ Forum was held on September
1, 2016 by three co-organizers. The forum was held in April
and October 2017, with the participation of a total of 10
companies, including the three co-organizers.
At this forum, the participants discussed topics such as
strategies for improvement of corporate value, including

initiatives for ESG, SDGs and sustainable management,“engagement that encourages constructive engagement”
from companies’ perspective, and expectations for asset
owners, including GPIF, to set forth the proxy voting
principles and requests for disclosure of proxy voting
records and promotion of dialogue.
As the opportunity to listen to companies' voices is very
useful for GPIF to fulfil its stewardship responsibilities, GPIF
continues to hold the Business and Asset Owners' Forum.
The opinions conveyed to GPIF will be fed back to external
asset managers and overseas asset owners as well so thatthe whole investment chain can be improved and optimized.

  B. 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 thatGPIF can better fulfil its stewardship responsibilities forthe pension beneficiaries by incorporating sophisticatedexpertise.
On November 14, 2016, the first Global Asset Owners'
Forum was hosted by GPIF, CalPERS (California Public
Employees' Retirement System) and CalSTRS (California
State Teachers' Retirement System) as the co-chairs. In
2017, the second Global Asset Owners' Forum was held in
California, the U.S. in May and the third one was convenedin Tokyo in November. At this forum, GPIF discussed thefollowing matters with overseas public pension funds: theneed for sharing best practices to align the interests of asset
owners with those of asset managers and sharing knowledge

35

and experience concerning ESG (environmental, social, andgovernance) issues; and shared use of legal networks, andresearch studies, etc. A summary of the discussions was
published.

Investment Results in Fiscal 2017 ｜ 4 Stewardship responsibilities④ Conducting a Survey of Listed Companies regarding Institutional Investors'

stewardship activities

Chapter1

  A. Objective of the survey
In fiscal 2017, GPIF conducted the third survey in orderto evaluate stewardship activities carried out by GPIF’s
external asset managers and ascertain the actual status of
purposeful and constructive dialogue (engagement), as wellas the changes that have been observed since the revisionof Japan’s Stewardship Code in May 2017. The scope of thesurvey was expanded to companies listed on the First Sectionof the Tokyo Stock Exchange (TSE) (2,052 companies*) toobtain opinions from a broader range of companies, andresponses were obtained from 619 companies, or 30.2% of
the all subjects surveyed. (*As of December 15, 2017)

As GPIF entrusts domestic equity investment of pension
reserve to external asset managers, it requests them toenhance stewardship activities. In line with this initiative,
in 2016, GPIF conducted its first questionnaire survey
with listed companies concerning institutional investors'
stewardship activities (the survey subjects were companies
adopted as components of the JPX Nikkei Index 400). The
purpose of surveys is to verify the effectiveness of external
asset managers’ stewardship activities through surveys oflisted companies, which are the target of external asset
managers’ stewardship activities.

B. Summary of the results of the survey
Meanwhile, many respondents voiced the following
expectations for GPIF to: (i) encourage its external asset
managers and securities companies through its external
asset managers to conduct dialogue from a mediumto long-term perspective; (ii) implement measures topromote reforms of its external asset managers including
personnel and evaluation systems from a medium- to longterm perspective; and (iii) promote ESG investment andopportunities for direct and indirect dialogue that will involve
small cap companies.

Of the survey respondents, 40 percent answered that there
had been favorable changes to the attitudes of institutional
investors at IR meetings, etc. since the revision of Japan’s
Stewardship Code in May 2017. Compared to the resultsof the previous questionnaire survey, the percentage ofcompanies that saw favorable changes increased slightly.
As regards the time span of discussion of institutional
investors at IR meeting, the majority of respondentcompanies answered that institutional investors are focusing
on a “medium- to long-term viewpoint” in discussion on
management strategy.

Response coverage rate
Inside: based on numberof companies
Outside: based on market cap

619
30 %

31%

Responded
Not responded

1,433
70 %

Response rate by company size
Large
-cap

Response rate by status of inclusion in ESG indices
Included inall 3 indices86.1

Medium
-cap
Small
-cap

20

81.3

Included in
1-2 indices

64.1

17.7

0

69%

72.0

21.2

Not included

40

60

80

100
(%)

0

20

40

60

80

100
(%)

36

Investment Results in Fiscal 2017 ｜ 4 Stewardship responsibilities［4］Material ESG issues recognized by external asset managers
Material ESG issues recognized by external asset managers
entrusted with domestic equity investment are as follows.
GPIF found that asset managers entrusted with passive
investment that keep holding investees’ stocks tend torecognize long-term issues such as “E” (environmental) and“S” (social) as material ESG issues, while asset managers
entrusted with active investment with primary holding
periods of approximately several months to a few years tend
to recognize “G” (governance) issues as material.

[Material ESG issues for passive managers][Material ESG issues for active managers]

Climate change

Capital efficiency

Diversity

Protection of minority shareholder's interests(cross shareholding, etc.)

Misconduct/Scandals
Capital efficiency
Supply chain
Disclosure
Protection of minority shareholder's interests(cross shareholding, etc.)

Corporate Governance
Structure and evaluation of Board of directors
Notes: Asset managers entrusted with both passive and active investment werecounted as asset managers entrusted with passive investment
Issues listed by all asset managers are marked in red
The lists include issues listed by more than five out of six asset managers
entrusted with passive investment as well as issues listed by more thaneight out of 10 asset managers entrusted with active investment［5］Exercise of voting rights① Concept of exercise of voting rights
The Medium–term Objectives by the Minister of Health,Labour and Welfare stipulate that 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, GPIF in its Medium–term Plan states, " GPIF
itself does not exercise voting rights and instead entrusts theexternal asset managers with the exercise of voting rights so
as not to give rise to a concern that GPIF could have a direct
influence over corporate management.

GPIF also suggests to the external managers that they should
recognize the importance of corporate governance andthat the voting rights should be exercised to maximize thelong–term interest of shareholders. GPIF asks each external
asset manager to establish a detailed proxy voting policy(guideline) and to report the voting results to GPIF."
External managers submit the guideline for voting andannually report voting results to GPIF. GPIF holds meetings
with the managers on the results, and in the annual evaluation
process of each manager by GPIF, the way a manager
exercises voting rights is evaluated by considering the itemas part of initiatives for fulfilling stewardship activities.

② Exercise of voting rights in fiscal 2017
GPIF held meetings based on the reports on the statusof exercise of voting rights from April to June 2017 andevaluated the external asset managers based on the reports
and the meetings from the viewpoints of “establishing of37

guidelines for the exercise of voting rights,” “organizationalframework,” and “the status of exercise of voting rights.” Asa result, we confirmed that voting rights were appropriately
exercised.

Investment Results in Fiscal 2017 ｜ 4 Stewardship responsibilities

The status of exercise of voting rights by external asset managers for domestic equities (from April 2017 to March 2018)
Number of external asset managers who exercised voting rights: 30 funds
Number of external asset managers who did not exercise voting rights: none

Management proposals

Number of voting 139,164
rights exercised

Shareholder proposals

Chapter1

Proposal(Unit: No. of proposals; percentage)
Proposals pertaining to capital management Proposals
Poison Pills(excluding items pertaining to amendment
Proposal pertaining to company organization
pertaining to(Rights plan)of the articles of incorporation)
Other
amendment of
Total
AppointAcquisition Mergers,
AppointAppointment Director
Director Granting
proposals
Director
Warning
Trust–
thearticlesofment of External ment of External of accounting remuneration bonuses retirement of stock Dividends of treasury acquisition,
type
type
incorporation
directors directors auditors auditors auditors
stock
etc.
benefits options
Proposals pertaining to director
remuneration, etc.

37,857

14,258

9,612

312

4,022

1,608

1,405

918

11,761

1

2,131

6,130

875

138,861 37,753 14,196
9,564
312
4,011
1,608
1,405
918 11,675
0
2,131
4,301
875
Total
(100.0%) (100.0%) (100.0%) (100.0%) (100.0%) (100.0%) (100.0%) (100.0%) (100.0%) (100.0%) (0.0%) (100.0%) (100.0%) (100.0%)
128,191 33,606 12,431
7,909
310
3,733
1,477
767
751 11,258
0
2,093
4,098
186
Approved(92.3%) (89.0%) (87.6%) (82.7%) (99.4%) (93.1%) (91.9%) (54.6%) (81.8%) (96.4%) (0.0%) (98.2%) (95.3%) (21.3%)
10,670
4,147
1,765
1,655
2
278
131
638
167
417
0
38
203
689
Opposed(7.7%) (11.0%) (12.4%) (17.3%) (0.6%) (6.9%) (8.1%) (45.4%) (18.2%) (3.6%) (0.0%) (1.8%) (4.7%) (78.7%)
303
104
62
48
0
11
0
0
0
86
1
0
1,829
0
Total
(100.0%) (100.0%) (100.0%) (100.0%) (0.0%) (100.0%) (0.0%) (0.0%) (0.0%) (100.0%) (100.0%) (0.0%) (100.0%) (0.0%)
25
12
0
0
0
0
0
0
0
24
1
0
193
0
Approved(8.3%) (11.5%) (0.0%) (0.0%) (0.0%) (0.0%) (0.0%) (0.0%) (0.0%) (27.9%) (100.0%) (0.0%) (10.6%) (0.0%)
278
92
62
48
0
11
0
0
0
62
0
0
1,636
0
Opposed(91.7%) (88.5%) (100.0%) (100.0%) (0.0%) (100.0%) (0.0%) (0.0%) (0.0%) (72.1%) (0.0%) (0.0%) (89.4%) (0.0%)

0219 182,804

0
201 180,494(0.0%) (100.0%) (100.0%)0
176 165,471(0.0%) (87.6%) (91.7%)
025 15,023(0.0%) (12.4%) (8.3%)
0
18
2,310
(0.0%) (100.0%) (100.0%)011
254(0.0%) (61.1%) (11.0%)
0
7
2,056
(0.0%) (38.9%) (89.0%)(Note 1) If a proposal has multiple items to exercise, the number of votes exercised for each item is shown.
(Note 2) The figures in parentheses are percentages to the total number of votes exercised for each proposal.

The status of exercise of voting rights by external asset managers for foreign equities (from April 2017 to March 2018)
Number of external asset managers who exercised voting rights: 20 funds
Number of external asset managers who did not exercise voting rights: none

Proposal

Shareholder proposals

Management proposals

Number of voting
rights exercised

Proposal pertaining to company
organization
Appointment of
directors

91,099Appoint- Appointment
Director
Director
ment of of accounting remuneration
bonuses
auditors
auditors

3,210

11,699(Unit : No. of proposals, percentage)
Proposals pertaining to capital management Proposals(excluding items pertaining to amendment
Other proposals
pertaining to Poison Pillsof the articles of incorporation)foramendment of
Total
Director Granting of
Acquisition Mergers,
Approval of
Other
Dividends of treasury acquisition, the articles of warning type financial
retirementstock
incorporation
benefits
optionsstock
etc.
statement, etc. proposals

Proposals pertaining to director
remuneration, etc.

23,713

343

300

4,477

8,428

4,527

13,646

7,423

299

11,814

39,227220,205

89,3002,657
11,54323,481
343
299
4,448
8,401
4,527
13,534
6,693
284
11,81434,408 211,732
Total(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%)
82,063
2,187
11,343
20,389
307
218
3,203
8,355
4,183
11,8496,032
166
11,59830,632 192,525
Approved(91.9%) (82.3%) (98.3%) (86.8%) (89.5%) (72.9%) (72.0%) (99.5%) (92.4%) (87.5%) (90.1%) (58.5%) (98.2%) (89.0%) (90.9%)
7,237
470
200
3,092
36
81
1,245
46
344
1,685
661
118
216
3,776
19,207
Opposed(8.1%) (17.7%)(1.7%) (13.2%) (10.5%) (27.1%) (28.0%)(0.5%)(7.6%) (12.5%)(9.9%) (41.5%)(1.8%) (11.0%)(9.1%)
1,799
553
156
232
0
1
29
27
0
112
730
15
0
4,819
8,473
Total
(100.0%) (100.0%) (100.0%) (100.0%)(0.0%) (100.0%) (100.0%) (100.0%)(0.0%) (100.0%) (100.0%) (100.0%)(0.0%) (100.0%) (100.0%)
1,156
363
126
65
0
0
11
7
0
95
443
15
0
2,157
4,438
Approved(64.3%) (65.6%) (80.8%) (28.0%)(0.0%)(0.0%) (37.9%) (25.9%)(0.0%) (84.8%) (60.7%) (100.0%)(0.0%) (44.8%) (52.4%)
643
190
30
167
0
1
18
20
0
17
287
0
0
2,662
4,035
Opposed(35.7%) (34.4%) (19.2%) (72.0%)(0.0%) (100.0%) (62.1%) (74.1%)(0.0%) (15.2%) (39.3%)(0.0%)(0.0%) (55.2%) (47.6%)(Note 1) Total number of votes exercised does not include the number of voting rights which were not exercised.
(Note 2) If a proposal has multiple items to exercise, the number of votes exercised for each item is shown.
(Note 3) The figures in parentheses are percentages to the total number of votes exercised for each proposal.
(Note 4) The negative votes include 252 abstentions.

38

Investment Results in Fiscal 2017 ｜ 5 ESG activities

5 ESG activities［1］Basic approach
Universal owner

・GPIF is an investor with a very large fund size and a widely diversified
portfolio.

Super long-term investor

・GPIF is responsible for supporting pension finance with an investment
horizon of as long as 100 years.
One of the core activities of GPIF to fulfill its stewardship
responsibilities is ESG (environmental, social andgovernance) activities, and GPIF is stepping up thestewardship activities because it is a universal owner and asuper long-term investor. “Universal owner” is a term usedin relation to pension investment and ESG investment

and refers to an investor with a well-diversified portfoliothat largely represents the world’s capital market. GPIF is atypical “universal owner” with a broadly diversified portfolio
comprised of equities and bonds of the majorities ofJapanese listed companies and major foreign companies.

The number of securities owned by GPIF (as of the end of March 2018)
3,000
2,500

2,793

(The number of securities)

2,321
2,061

2,174

2,000
1,500
1,000
500
0

TOPIX

Domestic equities
owned by GPIF

For instance, if the share prices of some portfolio companies
rise as a result of conducting business activities without
paying attention to their large impacts on the environmentand society for short-term revenue expansion, the overall
portfolio of a universal owner will be significantly impaired
if the economy as a whole, including operations of othercompanies, and society are negatively affected by suchactivities. In other words, the sustainability of the capital
market and society is a prerequisite for the sustainabilityof universal owners’ portfolios. The “universal ownership”,
the concept that universal owners conduct ESG activities
proactively to control and minimize such negative
externalities—lies at the core of GPIF’s ESG investment. In
addition, the longer the ESG risks persist, the more likely
it is that they will materialize. Therefore, we consider thatit has great benefits for GPIF to integrate ESG factors
into its investment process as a super long-term investor
responsible for supporting pension finance designed with

39

MSCI ACWI
Foreign equities(excluding Japan) owned by GPIF

an investment time horizon of as long as 100 years. That
is to say, conducting ESG activities is consistent with theobjective of the Employees’ Pension Insurance Act and the
National Pension Act to “manage pension reserve safely
and efficiently from a long-term perspective solely for thepension beneficiaries,” and GPIF continues promoting ESG
activities proactively.
GPIF conducts ESG activities not only for equities but also forother asset classes, including bonds and alternative assets,with the aim of maximizing medium- to long-term investment
returns for the pension beneficiaries. Evaluation of ESG
promotion activities requires the following perspectives: 1) ittakes a long period of time for the effects of ESG investment
to materialize; and 2) ESG investment is also aimed at
improving and raising the level of the sustainability of theentire capital market. These perspectives are different fromthe basis of general investment evaluation of how much

Investment Results in Fiscal 2017 ｜ 5 ESG activities

investment returns are generated over a certain period. Inorder to measure the effects of the ESG promotion activities,
including ESG investment, in improving the sustainabilityof the capital market and risk-adjusted returns and to make
PDCA (plan-do-check-act) cycle work properly, we plan tocompile “ESG Report” in fiscal 2018.
Chapter1

Expansion of
ESG investment（Inves tment opp or tunit yat low cos t）

Improving thesoundness ofpension finance

Building
sustainable
society

Increasing
incentives to enhance theresponse to ESG
by companies

Improvement of the
ESG evaluation ofcompanies

Improvement of risk
adjusted returns［2］Selected ESG indices for Japanese equities
be disclosed in order to facilitate information disclosure
by companies and (2) “positive screening” that determines
constituent companies based on their ESG evaluation
should be adopted in order to make opportunities available
to a wide range of companies to be selected as composite
companies. We are expecting that the use of those
selected ESG indices will provide an incentive for Japanesecompanies to enhance responses to ESG issues to lead tothe improvement of their corporate value in the long term.

In July 2017, GPIF selected three ESG indices for Japaneseequities and commenced passive investment tracking thoseindices. The selection criteria for the ESG indices included
economic rationality based on the risk-return profile of eachindex and if the adoption of the said indices is expected
to lead to boosting the equity market in Japan throughimprovement of ESG evaluation. In choosing the ESG indices,
GPIF emphasized that (1) the evaluation should be basedon public information and its method and results should

List of selected ESG indices
T he m a t i c i nd i c e s

In tegrated in d ices

FTSE Blossom

N/AE→Currently selecting
applications for Global
En v i ron m e n t a l St oc k In d e x

S

MS C I J a pa n
Em po w e r i n g W o m e n
I n de x ( W I N )( En v i ron m e n t a l)

Ja pa n Inde x( Soc i a l)

MSC I Ja pa n
E SG Se le ct
Leaders Index

G( Governance)

N/A

40

Investment Results in Fiscal 2017 ｜ 5 ESG activities

Index
concept

FTSE Blossom Japan Index

MSCI JapanESG Select Leaders Index

MSCI Japan Empowering
Women Index (WIN)

· The
	
index uses the ESG
assessment scheme that is
applied to the FTSE4Good
Japan Index Series which
has one of the longest trackrecords globally for ESG
indexes.

	
MSCI Japan ESG Select· The
Leaders Index is a broad
ESG index that integrates
various ESG risks into today’s
portfolio. The index is basedon MSCI ESG Research that
more than 1,000 clients use
globally.

· MSCI	
calculates thegender-diversity scoresbased on various pieces
of information disclosed
under “the Act on Promotionof Women's Participation
and Advancement in the
Workplace” and selects
companies with higher
gender diversity scores fromeach sector.

· The
	
index is a broad ESG
index that selects stocks
with high absolute ESG
scores and adjusts industry
weights to neutral.

· The
	
index incorporates
stocks with relatively high
ESG scores in each industry.

· The
	
first index designed
to cover a broad range offactors related to gender
diversity.

Constituent
universe(parent index)

FTSE JAPAN INDEX(509 stocks)

Top 500 companies(in terms of market cap)in the MSCI Japan IMI

Top 500 companies(in terms of market cap)in the MSCI Japan IMI

Number of index
constituents

149

252

208

WeightingMarket cap weighted(Industry neutral comparedwith the parent index to bringindustry weights in line)

Market cap weighted

Assets undermanagement¥526.6 billion¥622.9 billion“Market cap” times“Composite score”(*Composite score: “Sector-adjusted gender
diversity score” times “Sector-adjusted
quality score”)¥388.4 billion(Note) Number of index constituents and assets under management are as of March 31, 2018.

GPIF believes that in order to encourage companies tobe proactive in addressing ESG issues and disclosing
information, it is important to help them deepen theirunderstanding of the principles of ESG evaluation andindex development. To promote such understanding, GPIF
requests for index providers to publicly disclose how they41

conduct ESG evaluation and how they develop indices,and to proactively engage with companies. As a result,dialogue is increasing rapidly between index providers andcompanies, which is expected to lead to an improvement
in responses to ESG issues and information disclosure by
Japanese companies.

Investment Results in Fiscal 2017 ｜ 5 ESG activities[Percentages of companies engaged in dialogue with MSCI during the ESG evaluation process]

24%

Japan

60%
41%

Australia

31%

UnitedKingdom

34%

UnitedStates

26%
10%

20%

49%
47%

38%

Canada

0%

53%

39%

Switzerland
France63%

Chapter151%

Germany

47%
46%

2016
2017

42%
30%

40%

50%

60%

70%

80%

(Note) The objects of this reserch are companies selected by MSCI ACWI index(Source) ©2018 MSCI ESG Research LLC. Reproduced by permission.

［3］Called for application for global environmental stock index
In November 2017, following the selection of three ESG
indices in July, GPIF started soliciting applications for theenvironmental index for global equities. Considering thatenvironmental issues including climate change constitutecross-border, global challenges, applicants should propose
two indices based on the same concept, one for (i) global
equities (excluding Japanese equities) and one for (ii)Japanese equities. In addition, the index should be basedon the concept that it encourages entities to seek solutions
to environmental issues, rather than uniformly excluding
companies in specific industries or types of business. The
solicitation for applications was closed at the end of January
2018. We received proposals from 11 companies (groups)
and are currently in the screening process.

［4］Joint research program to incorporate ESG factors in fixed income investment
Research and implementation of ESG considerationsin investment are making progress in the field of equity
investment, but they have just started in the field of fixedincome investment. In order to explore the significanceand possibilities of integrating ESG considerations into
fixed income investment, for which the concept of ESG
integration is relatively new, GPIF has decided to conduct a
joint research program to incorporate ESG factors in fixedincome investment with the World Bank Group, which is
the world’s leading issuer of green bonds and social bonds
and is practicing integration of ESG factors in the process ofinvestment and loan to governments and companies aroundthe world.

In conducting research work, we carried out a comprehensive
study of past academic research work, as well as interviews
with officials of the world’s major public pension funds,
asset managers, and credit rating agencies. The WorldBank Group released a research report based on our joint
research program at Spring Meetings held in April 2018.

42

Investment Results in Fiscal 2017 ｜ 6 Other Major Initiatives

6 Other Major Initiatives［1］Call for applications from external asset managers① Call for applications through the Asset Manager Registration System
A. Call for applications for managers of foreign equity (passive and active investment)
To review external asset managers entrusted with foreign
equity investment, GPIF started to call for applications for
managers of foreign equity investment (passive and active)
through the Asset Manager Registration System in April
2016. The screening process of applications concerning

passive investment has moved on to the second stage.
As of the end of March 2018, a total of 434 funds haveapplied under the registration system, of which 350
funds made entries as external asset managers and 84 forproviding information.

B. Call for applications for managers of domestic equity (passive investment)
To enhance stewardship activities concerning domestic
equity passive investment, GPIF started to call for applications
for managers of domestic equity in March 2017. The
screening process has moved on to the second stage. In thescreening process, GPIF evaluates each applicant’s businessmodel as a whole, including the investment process,policy for stewardship activities, organizational systems to
implement stewardship activities, and the management fee
level.
As of the end of March 2018, a total of five funds haveapplied, all of which made entries as external asset managers
with no fund filing an application to provide information.

C. Call for applications for managers of alternative assets
To diversify the investment portfolio, GPIF calls applications
for executing multi-manager strategies concerning
alternative assets (infrastructure, private equity andreal estate). One domestic real estate fund and there
infrastructure funds have been appointed by the end of
this fiscal year, and started investment in those funds. In thescreening process, GPIF hired experts to develop a system
to prepare for starting alternative investment and utilized
expertise of multiple external advisors. In addition, GPIF
introduced a new fee structure that gives a higher weight
to performance-based fees with the aim of strengthening

the alignment of interest between GPIF and external asset
managers.
Concurrently with the above, GPIF is selecting external asset
managers in the private equity field and the overseas realestate field, and the screening process is expected to becompleted by the end of fiscal 2018.
The incorporation of alternative assets, which have different
risk-return profiles from traditional investment products suchas listed equities and bonds, into GPIF’s portfolio is expected
to improve investment efficiency through diversification.

D. Expansion of the scope of the Asset Manager Registration System to the four traditional asset classes
To enable flexible selection of external asset managers,
GPIF started to call for applications from managers ofdomestic bonds, foreign bonds, and domestic equities
active investment through the Asset Manager Registration
System on February 19, 2018. The expansion of the scope

43

allows us to compare the performance of new external asset
managers with existing ones under the same conditions,which would promote competition among external asset
managers.

Investment Results in Fiscal 2017 ｜ 6 Other Major Initiatives

G PI F
Assessment

New Manager

New Manager

New Manager
New Manager

Screening with utilizing
advice given by consultant

Daily data Management

Evaluation

Existing Manager

Existing Manager

New Manager

Existing Manager

Existing Manager

New Manager

Existing Manager

Existing Manager

Competition

Chapter1Monthly data Entry

Flexibly adopt new
asset managers

Selection Process for Asset Managers
Calling for application through the Asset Manager Registration System
Periodic Examination• Based on periodic examination of the composition of external asset
managers, the outline, etc. of review of external asset managers is deliberated
on at the Board of Governors.

First screening• Based on the documents submitted by asset managers that applied for
the Asset Management Registration System, asset managers subject to thesecond screening will be selected.
・Requirements for public invitation, such as approval under relevant laws and regulations
・Investment performance, etc.

Assessment
criteria
Qualitative assessment thattakes into account quantitative
performance• Investment policies• Investment processes• Organization and humanresources• Corporate governance structure

and conﬂicts of interest• Internal control

Second screening• Stewardship activities (only for• Interview questions: (Investment policy, investment process, organization andhuman resources, stewardship activities, internal control, administrative
operation system, information security system, etc.)• Information security measures• Based on the results of interview, comprehensive assessment, without
considering investment management fees, of asset managers will be
conducted. Asset managers subject to the third screening will be selected bytaking the composition of external asset managers into account.

• Information provision, etc.

• Interview subject: Newly applied asset managers

equities)• Administrative operation system• Investment management fees

Third screening• Interviews will be conducted with newly applied asset managers that havepassed the second screening at their ofﬁces (to conﬁrm if their investment
philosophy and processes are shared by fund managers, etc. who makeinvestment decisions and other matters).
• After interviews are conducted, a comprehensive assessment of newly
applied asset managers and existing asset managers will be carried out by
taking investment management fees into consideration, and GPIF’s asset
managers will be selected.
• The results of selection will be reported to the Board of Governors.

44

Investment Results in Fiscal 2017 ｜ 6 Other Major Initiatives② Introduction of a new performance-based fee structure
GPIF studied implementing a full-scale performance-based
fee structure with the aim of strengthening the alignmentof interest between GPIF and external asset managers
entrusted with active investment (to encourage to achieve an
excess rate of return over the benchmark and improving thelevels of excess returns over the long term) and enhancing
self-governance (investment capacity management) of asset
managers entrusted with active investment, and introduced

the new performance-based fee structure from April 2018.
In addition, GPIF newly approved investment in perpetualbonds, unrated bonds (limited to those with an issuer’s
rating) and bank loans (limited to those invested throughinvestment trusts) under a certain risk management so thatcapabilities of active asset managers can be demonstrated
and expected further. GPIF also eased full investment andrestrictions on concentrated investment.

Outline of the new performance-based fee structure• Investment fees will be linked to excess returns (i.e., performance-based fees), and the fee rate applied to funds
which do not deliver excess returns will only receive fees on a par with those paid to asset managers of passive
investment (i.e., basic fees).
•T he fee scheme is structured so that the fee rate applied to funds which achieved target excess return rate is
assumed to be the same level as the fixed fee rate for existing contracts.
• In exchange for applying fees linked to long-term investment results to some external asset managers, a multi-year
contract is concluded with some external asset managers based on market cycles.

New performance-based fee structure[Relation between excess return rate and fee rate](Fee rate)

0.7%

Proposed new
performance-based fees

0.6%

No upper limit on the fee
Investment returns are
expressed as an amount.

0.5%
0.4%
(equivalent to the rateof passive fund)

Current performance-based fees

Break-even point

Base fee rate

With upper limit on the fee
Investment returns are
expressed as a percentage.

0.3%
0.2%

Fixed fees

0.1%
0.0%
-2%

-1%

The fee rate is constantregardless of the levelof excess return rate.

Point where
performance-based fees arise

0%1%

Target excess return rate

2%

3%

4%

5% (Excess return rate)③ Management and assessment of external asset managers, etc.
A. Management and assessment of external asset managers
To manage external asset managers, GPIF employedmethods that included requesting monthly reports on
investment performance and risk status, confirming thestatus of compliance with investment guidelines, andrequesting explanations in regular meetings and otheractivities.
To assess external asset managers, we changed the methodof assessment in November 2017 from the comprehensive
assessment of external asset managers through qualitative45

assessment (of matters such as investment policies including
the basis of investment style, investment processes including
strategic decisions, organizations and human resources)and quantitative assessment (of excess rate of returns andtracking errors for passive investment and of excess rateof returns and information ratio for active investment) tocomprehensive assessment through qualitative assessmentthat factors in quantitative performance. The objective is
to boost the future possibility of earning excess returns. As

Investment Results in Fiscal 2017 ｜ 6 Other Major Initiatives

due to the resignation of the fund manager.
To manage external asset managers who are transition
managers, GPIF employed methods that included
requesting reports on transition management, confirming
the status of compliance with investment guidelines, andrequesting explanations in regular meetings and otheractivities. Assessment of transition managers was conductedbased on the comprehensive assessment of items includingtransaction execution capability, organizations and humanresources. The results of this comprehensive assessment
showed that there were no particular problems identified
with any transitional manager, which led us to conclude
that it would be appropriate to continue with the existing
contracts with them.

Chapter1

a result of this change, the comprehensive assessment offoreign bond investment and domestic bond investment
was performed based on the conventional comprehensive
assessment through qualitative assessment and quantitative
assessment, while the comprehensive assessment ofdomestic equity active investment and foreign equity
active investment was performed based on the revised
comprehensive assessment through qualitative assessmentthat factors in quantitative performance.
As a result of the above comprehensive assessment, we
decided to collect some funds from or cease to allocate
funds to two domestic equity active funds, four foreign bondactive funds and four foreign equity active funds. In addition,
we terminated a contract with one foreign bond active fundB. Management and assessment of custodians
To manage custodians, we employed methods that included
requesting data on asset management, confirming the statusof compliance with asset management guidelines, andrequesting explanations in regular meetings, including onsite inspection, and other activities. Assessment of custodians
was conducted through comprehensive assessment of items

including operational structures and asset management
systems. The results of this comprehensive assessment
showed that there were no particular problems identified
with any custodian, which led us to conclude that it would
be appropriate to continue with the existing contracts with
them.

［2］Promoting research and study① GPIF Finance Awards
GPIF believes that if pension reserve is to be invested safely
and efficiently now that investment techniques are becoming
increasingly sophisticated and financial products are
growing in diversity, it is essential to develop an environmentthat encourages continuous efforts to enhance academic
research concerning investment.
As part of an initiative to develop such an environment, GPIF
Finance Awards have been established in 2017 to encourage

research activities by commending young researchers
who have made remarkable achievements in the field ofinvestment and by widely promoting their achievements
and the social significance of their activities. In January 2018,the selection committee of experts in the academia andrelated fields selected Dr.Yoshio Nozawa as a winner of the
2nd Awards for his contributions to risk premiums analysis ofcorporate bonds.

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
David Chambers	Professor, Cambridge Judge Business School, University of Cambridge
Kazuo Ueda	Professor, Faculty of International Studies at Kyoritsu Women’s University, Director, Center for Advanced
Research in Finance at the University of Tokyo (former chair of the Investment Advisory Committee)
Yuri Okina	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)

46

Investment Results in Fiscal 2017 ｜ 6 Other Major Initiatives② Promoting joint research and study
GPIF considers that it is necessary to conduct researchstudies and joint research projects with universities, etc.
and accumulate know-how acquired through such research
activities in order to continue management and investmentof pension reserve safely and efficiently into the future. In
fiscal 2017, we carried out the following three researchstudies and joint research projects.

A. Research study project on business models of investment managers
Objectives: For GPIF which outsources investment
management of a large proportion of assets, it is essential
to understand the current status and direction of businessmodels of investment managers. Our full-scale launchof alternative investment and introduction of the AssetManager Registration System have led to the diversificationof external asset managers. Considering this, we conducted
research on items including business strategies, income andexpense structures, monetary incentives for managers andemployees of external asset managers.
Company to which work was outsourced: Accenture JapanLtd.

B. Research study project on the impact of Artificial Intelligence (AI) on investment management
Objective: AI is being put in use in many fields, due to the
explosive growth in data volume and dramatic increasein the processing speed of computers and it has started
to come into use also in investment management in
operations including research, trading and compliance.
In the meantime, there is very few precedents that serve
as a reference available for the use of AI in investment

management for public pension funds, etc. Accordingly,
GPIF conducted a pioneering analysis of the usability, etc.
of AI in the long-term investment management of pension
reserve and the overall operations of GPIF and examined theimpact of AI on business models of investment managers.
Company to which work was outsourced: Accenture Japan
Ltd., Sony Computer Science Laboratories, Inc.

C. Joint research project on macroeconomic forecast using the Overlapping-Generations (OLG) Model
Objective: Target returns of public pension fund investment
are set in comparison to the rate of nominal wage growth.
Therefore, it is important to sophisticate the macroeconomic
forecast model, including forecasts of the rate of nominal
wage growth, in order to assess the profitability ofinvestment assets appropriately. Therefore, we enhanced
the framework of macroeconomic forecast based on the47

Overlapping-Generations Model by factoring in changes inthe demographic composition, in particular, the coexistenceof the working generation and the retired generation in
the household sector, and changes including a generationtransition.
Joint research entity: Keio University

Investment Results in Fiscal 2017 ｜ 6 Other Major Initiatives

Chapter148

Roles and Organizational Operation ofChapter 2
Government Pension Investment Fund
1 GPIF’s Roles in the Public Pension Scheme［1］GPIF’s position① The pension finance system and GPIF
Japan’s public pension scheme is fundamentally managed
as a pay-as-you-go system that incorporates the concept
of intergenerational dependency, whereby pension
premiums collected from working generations support
older generations, instead of the advance funding method
whereby funds required to cover pension benefits areaccumulated in advance.
Under the pay-as-you-go pension system, it is not
generally necessary to hold a large amount of pension
reserve, aside from pension reserve for payment. In themeantime, Employees’ Pension Fund started as an advanced
funding method, and due partly to this, the portion ofpension premiums not allocated to pension benefits wereaccumulated as pension reserve. Given the increase in the
proportion of elderly population in the future, pension
reserve has a fundamental significance in the public pension
scheme that “the portion of pension premiums not allocatedto pension benefits will be invested as pension reserve tostabilize pension finance.”
There are three laws relevant to public pension fundinvestment management: the Employees' Pension Insurance
Act, National Pension Act, and Act on the Government
Pension Investment Fund, Incorporated Administrative
Agency (hereinafter the "Act on the Government Pension
Investment Fund") which provide that “pension reserve
shall be managed safely and efficiently from a long-term perspective solely for the pension beneficiaries”(Employees’ Pension Insurance Act and National PensionAct) and “pension reserve shall be managed safely andefficiently” (Act on the Government Pension InvestmentFund). Based on these laws, the most fundamental
requirement for management of pension reserve is “safeand efficient management of pension reserve from a longterm perspective.”
The competent minister is to set objectives of GPIF fora set period of time, as is the case in other incorporated
administrative agencies (Act on General Rules for
Incorporated Administrative Agencies). “Objectives tobe achieved by GPIF” (hereinafter the “Medium-term
Objectives”), set by the Minister of Health, Labour andWelfare, stipulates that “GPIF is required to achieve a longterm real return (net investment yield on the pension reserve
less the nominal wage growth rate) of 1.7% with minimalrisks, while maintaining liquidity necessary for the pension
payout, based on the current status and outlook for pension
finance.” In light of these requirements, GPIF, in its Mediumterm Plan, established the asset allocation (Policy Asset Mix)from a long-term perspective, based on the philosophyof diversified investment, and carries out investment andmanagement of pension reserve based on the Policy AssetMix.

② Roles of pension reserve in pension financePension reserve is to be used to stabilize pension finance.
Specifically, with the aim of balancing pension financein about 100 years, the fiscal plan was drawn up to use
investment returns on pension reserve to pay part of pension
benefits in the beginning and gradually use pension reservedrawn down, in addition to investment returns, after a certain
period of time to fund pension benefits so that pension
reserve equivalent to one year of pension benefits willremain approximately after 100 years. About 90 percentof the financial source of pension benefits (the average

49

of approximately 100 years based on the assumption of
fiscal verification) are funded by pension premium andgovernment contribution for the year, while the financial
source obtained from pension reserve (reimbursement oftrust money or payment to national treasury) accounts forabout 10 percent. GPIF owns sufficient pension reserve
necessary for the payment of pension benefits, and therefore
short-term market fluctuations in relation to the investmentof pension reserve do not affect the payment of pension
benefits.

［2］Key items of the Medium-term Objectives and the Medium-term Plan
① The Medium-term Objectives period
The Medium-term Objectives periods at GPIF are thefollowing: a four-year period from fiscal 2006, when GPIF
was established, to fiscal 2009 (the first cycle), a five-year
period from fiscal 2010 to fiscal 2014 (the second cycle), anda five-year period from fiscal 2015 to fiscal 2019 (the third
cycle). The final fiscal year of each cycle corresponds to theyear of an actuarial valuation that the government conducts
every five years on the public pension scheme. This is basedon the stipulation of the applicable law, which specifies GPIF
policy asset mix should be established in consideration of
actuarial evaluation and should be described in the Mediumterm Plan.

② Operating Rules for Investment Management (ORIM)
perspective solely for the pension beneficiaries. To promote
disciplined investment management, the Objectives require
GPIF to formulate the ORIM. This is based on the following
provisions of the Employees' Pension Insurance Act andother relevant laws and regulations.

Chapter2

The Medium–term Objectives acknowledge that the pension
reserve, part of the premium collected from pension
beneficiaries, is 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 pension reserve, a part of the premium collected from the pension beneficiaries, is 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 thepension beneficiaries the Employees' Pension Insurance.
○Article 20, Paragraph 2 of the Act on the Government Pension Investment Fund
. . . GPIF must consider generally recognized expertise and macro–economic trends, as well as the impact of thepension reserve on the markets and other private sector activities, while avoiding concentration on any particular styleof investment. 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 thestandardization of employees' pensions from October 2015,
the policy asset mix of the third Medium–term Plan took into
consideration the Reference Portfolio established jointly by
GPIF, the Federation of National Public Service Personnel

Mutual Aid Associations, the Pension Fund Association for
Local Government Officials and the Promotion and Mutual
Aid Corporation for Private Schools of Japan.
In addition to the formulation and publication of the ORIM,
the Medium–term Plan requires GPIF to review the ORIM atleast once a year and revise it promptly as deemed necessary.

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 pension reserve must achieve a long–term
real return (net investment yield on the pension reserve lessthe nominal wage growth rate) of 1.7% with minimal risks,
while maintaining liquidity necessary for the pension payout,
based on the actuarial valuation of the pension scheme.

The third Medium-term Objectives also require GPIF to makeefforts not to affect market pricing or investment activities byprivate sectors, and to achieve the benchmark rate of return(market average rate of return) for each asset class during
the period for the Medium-term Plan.
Regarding risk management for the pension reserve,
GPIF maintains the diversified portfolio, and manages andcontrols risks at the levels of the overall asset portfolio, each
asset class, and each investment manager.

50Roles and Organizational Operation of Government Pension Investment Fund ｜ 1 GPIF’s Roles in the Public Pension Scheme

The third Medium–term Objectives which started in
April 2015 require GPIF to combine passive and active
investments, with active investment to be based on thestrong conviction of the excess return, taking historicalperformance into account. In equity investment, GPIF
considers non–financial factors, including environment,social and governance (ESG) issues without compromising
return.

In October 2017, the Board of Governors was established.
The Board of Governors is responsible for holding
deliberations and making decisions on important mattersrelated to the introduction of a new investment method, etc.
An outline of the deliberations at the Board of Governors is
published promptly upon obtaining approval of the Boardof Governors. Governance reforms, as will be describedlater, are centered on establishing the Board of Governors
and the Audit Committee and have helped improve thetransparency of GPIF’s organizational operation.

④ Other important matters to be observed for pension reserve 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 pension reserve, 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 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, GPIF is expected to take appropriate
measures including selling assets smoothly while giving
consideration to market price formation, etc.

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 Stewardship⑤ Enhancement of investment management capabilities, improvement of operational efficiency
In the Medium–term Objectives, GPIF is expected to clarify
the expertise for the highly skilled professionals and the areaof operations requiring such expertise, while developing
an appropriate environment for attracting such talent,
implementing a periodical performance evaluation system,
and maintaining human resource in the most suitable way.
GPIF is also expected to explain clearly to the public theappropriateness of the remuneration level applied to suchhighly skilled professionals by referring to comparable
remuneration in private sectors.
GPIF is also expected to develop a comprehensive
portfolio risk management system, including alternative–
investment–specific risk management, with considerationof cost effectiveness. GPIF will make risk management moresophisticated by upgrading its forward–looking risk analysis
functions, risk analysis tools, information accumulation andresearch capability.

51

With regard to improvements in operational efficiency, theObjectives 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, andexpenses related to short–term borrowing). The newadditions and expansions pursuant to the December 2013
Cabinet Office decision and similar factors are excluded
from the cost–saving target. However, the additions andexpansions are included in 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, considering changes in the respective amounts
of invested assets.

Roles and Organizational Operation of Government Pension Investment Fund ｜ 2 Organization and Internal Control System

2 Organization and Internal Control System［1］Governance reforms (establishment of the Board of Governors and the Audit Committee)
makes decisions on important matters upon deliberation
through resolution, pursuant to Article 5-3, Paragraph 1-1 of
the Act on the Government Pension Investment Fund. In otherwords, unlike the preceding Investment Advisory Committee,
the Board of Governors makes decisions on GPIF’s important
policies by itself. “Important decision-making” carried out by the
Board of Governors includes development of the Policy Asset
Mix and the Medium-term Plan, preparation of annual plans,review of operations, decisions on important maters relevantto the operation of GPIF, such as approval of appointmentof the President. In addition, the Board of Governors is tosupervise the execution of duties by the President and otherexecutives, pursuant to Article 5-3, Paragraph 1-2 of the Act on
the Government Pension Investment Fund.
Three Governors concurrently serve as Auditors (of which one
is a full-time member) and carry out audit on GPIF’s operations
pursuant to the Article 19, Paragraph 4 of the Act on General
Rules for Incorporated Administrative Agency applied mutatis
mutandis pursuant to Article 5-9, Paragraph 1 of the Act on
the Government Pension Investment Fund. The Board alsosupervises the status of implementation of GPIF’s operations by
the President or Executive Managing Directors as provided for by
the Board of Governors in accordance with Article 5-9, Paragraph
2 of the Act on the Government Pension Investment Fund.
Under the supervision and monitoring by the Board ofGovernors and other bodies, the President represents GPIF andpresides over GPIF’s operations as provided by the Board, in
accordance with the provisions of Article 7, Paragraph 1 of the
Act on the Government Pension Investment Fund.
GPIF is required to carry out its operations appropriately undersuch new governance system and gain greater trust fromJapanese public.

[After amendment][Before amendment]
Minister of Health, Labour and Welfare

Minister of Health, Labour and Welfare

Design of Public Pension Schemes/ Actuarial Valuation of Pension Finance

Design of Public Pension Schemes/ Actuarial Valuation of Pension Finance

GPIF

Setting of and giving directions on the Medium-term Objectives (investment returns, etc.)
Approval of the Medium-term Plan and Statement of Operation Procedures, assessment of GPIF

GPIF

President
Appointment

Appointment

Appointment

Auditor

Deliberation/approval of proposals /supervision of execution /recommendations

Setting of and giving directions on the Medium-term Objectives (investment returns, etc.)
Approval of the Medium-term Plan and Statement of Operation Procedures, etc., assessment of GPIF

- Comprised of exper ts in such fields as economics, finance, asset
management and business administration, and the President.
- Chairperson is appointed by the Minister of Health,Labour andWelfare from committee members other than the President.
-The Executive Managing Director (Investment and Management)is allowed to state opinions on relevant proposals.

Making final decisions on important policies, including
the Policy Asset Mix

Audit

Advisory Council Social Security(Pension Sub-Committee)
Deliberation on the Medium-term Plan, etc.

Board of Governors

Execution of operations

Appointment

Chapter2

Following the promulgation of the Law to Partially Amend the
National Pension Act, etc. to improve the sustainability of the
public pension scheme in December 2016 and the partial
enactment of the law, the Act on the Government Pension
Investment Fund, was amended in October 2017 with theaim of establishing an organizational framework worthy ofgreater trust of Japanese public and managing pension
reserve more safely and efficiently. In accordance with this law
amendment, GPIF established the Board of Governors and the
Audit Committee with the aim of “shifting from the individual
decision-making model to the council system” and “separating
decision-making and supervision from execution.”
Before its amendment, the Act on the Government Pension
Investment Fund stipulated that the President shall represent
GPIF as the chief of an agency, and preside over its operationsin accordance with the Act on General Rules for Incorporated
Administrative Agencies. GPIF accordingly adopted an
individual decision-making model whereby the President
takes responsibility for all decision-making. The Investment
Advisory Committee, which is comprised of external experts,
is established under the President. Important matters, such as
preparation and revision of the Medium-term Plan including
Policy Asset Mix, are required deliberation by the Investment
Advisory Committee. Meanwhile, the Investment Advisory
Committee was positioned strictly as an advisory body of the
President.
Under the new governance system based on the revised law,
the Board of Governors was established. The Board consistsof a total of 10 members: nine professionals with academic
background or practical experience in economics, finance,
asset management, business administration, and other fields
relevant to GPIF’s operations, and the President. The Board

Consultation/
report, etc.

Investment Advisory Committee(Comprised of experts with deep insights ineconomics or finance and other academic experts)

Deliberation on important policies, including the Policy Asset Mix
Discussion on execution, including selection of external asset managers

Decision-making on important policies, including the Asset Mix Policy
State opinions / provide
audit resultsAppointment

Appointment of
the President
Approval of the
Executive Managing Director(Investment and Management)

Audit

Audit Committee

Comprised of the Govornors appointed
by the Minister as qualified to be the Auditors

Audit, etc.

Approval of
appointment of
the Executive
Managing Directors

Supervision of
execution

Shift from individual
to council decisionmaking system

Separation ofdecision-making
and supervisionfrom execution

Strengtheningof audit andsupervision

Executive Office
Execution52

Roles and Organizational Operation of Government Pension Investment Fund ｜ 2 Organization and Internal Control System［2］Board of Governors
The Board of Governors held a total of eight meetings infiscal 2017. An outline of the meetings is as described in thefollowing table. The Board of Governors resolved to change
various regulations following the change of governancein the early days after its establishment, and subsequently
deliberated on and resolved various matters. In addition, theBoard of Governors received numerous reports on importantmatters from the Executive Office and held discussions on
the details of such matters. The details of discussion by the
Board of Governors are published on the website of GPIF
after a certain period time as a summary of agenda items.
At meetings of the Board of Governors, experts in various
fields, such as economics, finance, asset management

and business administration, make an effort to discuss abroad range of agenda items related to GPIF’s investment
and operation management from a multidimensional
perspective whenever possible and make timely andappropriate decision-making. For instance, at the meetingof the Board of Governors held in March 2018, Governors
deliberated and made resolutions on GPIF’s scheduledactivities and budgetary provision necessary to conduct
such activities from various perspectives, such as the pros
and cons of investment activities, appropriate measurement
method of cost performance, and improvement oftransparency of expenses.

Outline of Meetings of the Board of Governors
Fiscal 201753

Date of meeting

Main agendas (only matters for resolution/deliberation are recorded)

1st meeting(Round-robinmeeting)

Oct. 1, 2017

(Resolution) (i) Establishing of the Board of Governors' Rules, (ii) Establishment of the Guidelines
for Preparation and Disclosure of the Board of Governors’ Minutes, (iii) Approval regarding the
Appointment of Executive Managing Director (for investment management) and Executive
Managing Director (excluding one for investment management)

2nd meeting

Oct. 2, 2017

(Resolution) (i) Change of the Statement of Operation Procedures, (ii) Change of the Medium-term
Plan, (iii) Change of the Investment Management Policies, (iv) Change of the Annual Plan, (v) Changeof the Standards for Payment of Remunerations, etc. and Salaries, etc., (vi) Change of Sanction Rules,(vii) Establishment of matters provided for by the Ordinance of the Ministry of Health, Labour andWelfare as required for executing duties of the Audit Committee, (viii) Establishment of mattersprovided for by the Ordinance of the Ministry of Health, Labour and Welfare as required for ensuring
the appropriateness of GPIF’s operations (ix) Important matters related to organization and staff
size, (x) Change of GPIF Investment Principles and the Code of Conduct, (xi) Matters regarding themaintenance of ethics and discipline in the duties of executives and staff members(Deliberation) Principal regulations regarding compliance3rd meeting

Nov. 1, 2017

(Resolution) Change of the Standards for Payment of Remunerations, etc. and Salaries, etc.
(Deliberation) Principal regulations regarding compliance (second round)

4th meeting

Dec. 15, 2017

(Resolution) (i) Revision of regulations regarding compliance, etc., (ii) Coordination procedures prior
to resolving on the annual plan (budget), (iii) Matters for resolution regarding the comprehensive
assessment(Deliberation) Sorting out matters for resolution on the investment and management operations

5th meeting

Jan. 22, 2018

(Resolution) (i) Establishment of Project Team (PT) for examining the Policy Asset Mix, (ii) Starting ofinvestment in bank loans(Deliberation) (i) In-house derivatives transactions, (ii) Efforts for the LPs scheme in relation toalternative investment, (iii) Sorting out of matters for resolution on the investment management
operations (second round)

6th meeting

Feb. 19, 2018

(Resolution) (i) Change of accounting rules, (ii) In-house derivatives transactions, (iii) Efforts for the LPs
scheme in relation to alternative investment

7th meeting

Mar. 14, 2018

(Resolution) (i) Important matters related to organization and staff size, (ii) Change of the Standards
for Payment of Remunerations, etc. and Salaries, etc., (iii) Implementation of project for review ofexisting regulations(Deliberation) (i) Change of the Statement of Operation Procedures, (ii) Annual plan for fiscal 2018
(draft)

8th meeting

Mar. 30, 2018

(Resolution) (i) Change of the Statement of Operation Procedures, (ii) Annual plan for fiscal 2018 (draft)(Deliberation) Periodic verification of the Policy Asset Mix

Roles and Organizational Operation of Government Pension Investment Fund ｜ 2 Organization and Internal Control System［3］Audit Committee
as further strengthening internal controls. The Board ofGovernors will inspect improvements of GPIF’s regulations
for internal controls, etc. by the end of fiscal 2018, based on
this year’s law revision aimed at enhancing governance, and
the Audit Committee is proceeding with work in accordancewith the resolution by the Board of Governors.
The Audit Committee held a total of eight meetings in fiscal
2017. The Audit Committee performed audits primarily fromthe five perspectives: the status of achievement of Mediumterm Objectives, the status of execution of duties by the
Board of Governors and Governors, the status of executionof duties by the President, other executives and staff
members, the status of internal control system following thechange of governance system, and the status of accounting.
The results of audits would be published as the Audit Reporton GPIF’s website.

Chapter2

The Audit Committee executes its duties by taking commandof staff members at the Secretariat for the Audit Committee,
who assist the duties of the Audit Committee and are
independent from the President and Executive Managing
Directors, as well as closely coordinating with the Internal
Audit Department and the Accounting Auditor (Deloitte
Touche Tohmatsu LLC). In addition, the Audit Committee
attends various committee meetings organized by the
Executive Office (the Investment Committee, the Portfolio
Risk Management Committee, the Management andPlanning Committee, the Procurement Committee, etc.), as
needed. The Committee assesses the actual status of GPIF’s
operations through interviews with the person in charge ofeach department, the President, and Executives Managing
Directors, reports and shares information obtained throughthese activities with the Board of Governors, and raisequestions on organizational management issues, such［4］Execution system① Organization
As of April 1, 2018, GPIF has 12 executives, consistingof Chairperson of the Board of Governors, eight
Governors(including three Governors and Auditors), thePresident and two Executive Managing Directors (one forPlanning and General Affairs and another for investment
Management and serving as the CIO), as well as 121 staff
members (excepting part-time staff).
The organization consists of Secretariat for Board ofGovernors, Secretariat for Audit Committee, the General
Affairs Department (General Affairs Division, Accounting
Division), Planning and Communication Department(Planning and Communication Division, Treasury Division,
Research and Actuary 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, Public Market 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).

54

Roles and Organizational Operation of Government Pension Investment Fund ｜ 2 Organization and Internal Control System

Organization Chart (as of April 1, 2018)
Board of Governors

Secretariat for
Board of Governors

Audit Committee

Secretariat for
Audit Committee
General Affairs
Department

President
Executive Managing Director(Planning and General Affairs)
Executive Managing
Director(CIO)

General Affairs
Accounting
Planning andCommunication

Chiefof staff

Planning andCommunication
Department

Treasury
Research and Actuary

Portfolio Risk Management
Department

ComplianceOfﬁcerLegal
OfﬁcerInformation Security
Administration Department

Investment Strategy
Department

Information Security
Administration
IT Administration
Investment Strategy

Investment Administration
Department

Public Market Investment
Department

Public Market
Investment
Stewardship & ESG

Private Market Investment
Department
Internal Fixed Income
Investment Department
Internal Audit
Department② Internal control system
At GPIF, the Board of Governors provides for the system
to make sure that the execution of duties by the President,
Executive Managing Directors, and staff members complies
with laws and regulations, which would be necessary toensure proper operations. Based on those provisions, theBasic Policies of Internal Control set forth the system tomaintain the effectiveness and efficiency of operations, thesystem to comply with laws and regulations, the system tomanage portfolio risks, the system to preserve documents
and information, and the system to ensure reliability offinancial reporting.

55

In order to maintain the effectiveness and efficiency ofoperations, the Internal Control Committee oversees theinternal control system, and directors, departments, andpersons in charge of internal control are assigned. All
executives and staff members are informed of the necessity
to comply with the Investment Principles and Code of
Conducts and to act as an organization worthy of the trustof the public. The Management and Planning Committee
facilitates the efficient operation of GPIF, and the appropriate
decision-making on important management issues. Also, theChief Investment Officer (CIO) is assigned to run investment
management, and the Investment Committee, chairedby the CIO, ensures that investment decisions are made

Roles and Organizational Operation of Government Pension Investment Fund ｜ 2 Organization and Internal Control Systemappropriately. Furthermore, the Internal Audit Department
conducts internal auditing of GPIF's operations and related
responsibilities.
Regarding the system for compliance with laws andregulations, the Compliance Committee is established underthe Internal Control Committee to deliberate on importantcompliance issues, and the Compliance Officer and Legal
Officer are appointed. A whistle blowing system is alsoavailable, and corrective actions and preventive measureswould be taken according to our internal rules wheneveran illegal or inappropriate activity is (or is expected to)perpetrated by executives or staff members of GPIF.

Regarding portfolio risk management, the Portfolio Risk
Management Committee monitors and manages various
portfolio risks, and the Internal Control Committee identifies,
analyzes, and manages operational risks that could impede
GPIF's day-to-day operations.
In order to establish a system for managing and preserving
documents and information, the Chief Information
Security Officer is appointed, and internal policies for the
maintenance and usage of information system, as well as the
management of documents, are established. Information
security system is also strengthened by taking measures,such as conducting deliberation on important information
security issues at the Information Security Committee.

Chapter2

Concept of Internal Control
Minister of Health, Labour and Welfare[Performance
evaluation］

Advisory Council
Social Security

Consultation(Pension Sub-Committee)

Design of Public Pension Schemes/ Actuarial Valuation of Pension Finance
Demanding corrective
measures Appointment of President andGovernor(Chairperson and Governor(including Auditor))

Medium-term objectives
Preparation,
instruction

Approval

Consultation

Reports, opinions

GPIF
Medium-term plan
Annual plan

Audit

Board of Governnors
ConsentSupervisionExecutive Managing Director(Planning and General Affairs)

Executive Managing Director(Investment and Management) /CIO

Secretariat for
Board of Governors

Appointment

Contract inspection, review

Membership consistingof Auditors and external
experts

Secretariat for
Audit Committee

Audit

Participation

Approval

Contract Monitoring
Committee

Audit Committee

Monitoring

President

Board of Audit
Audit

Risk of losses management system
Portfolio Risk Management Committee

Operational effectivenessand efficiency securing system

Internal Control Committee

Internal Control Committee

Account auditor《 External audit》

Information retention and management system

Management and Planning Committee

Chief Information Security Officer

Investment Committee

Information Security Committee

Procurement Committee

Reliability ensuring system including
financial reporting

Chief Information Officer

Management and Planning Committee
Tripartite Audit Committee

Information Systems Committee(Audit Committee, Account Audit , Audit Office)Legal and regulatory compliance system*1*2Compliance Officer
Internal Audit Dept.

Internal Fixed Income Investment Dept.

Private Market Investment Dept.

Public Market Investment Dept.

Investment Administration Dept.

Investment Strategy Dept.

(Legal Counsel)

Information Security Administration Dept.

Whistle-blowing liaison

Portfolio Risk Management Dept.

Compliance Committee

Planning and Communication Dept.

Internal Control Committee

General Affairs Dept.

Legal Officer*3

Whistle-blowing system*１ The Executive Managing Director (Planning and General Affairs) is responsible for matters related to the General Affairs Dept., Planning and Communication
Dept., Portfolio Risk Management Dept., and Information Security Administration Dept.
*２ The Executive Managing Director (Investment and Management)/CIO is responsible for matters related 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.

56

Chapter

3 Reference Data

1 Investment Assets by Investment Method and by Manager, etc.
［1］Investment assets by investment method and by asset class (market value at the end of fiscal 2017)

Total (Investment assets)
Total

MarketPassive investments
investments
Active investments
FILP bonds

Total (Investment assets)
Domesticbonds
Domestic
equities
Foreignbonds
Foreignequities

Total
Passive investments
Active investments
Total
Passive investments
Active investments
Total
Passive investments
Active investments
Total
Passive investments
Active investments

Short-term assets（Active investments）
FILP bonds

Market Value (¥billion)

Portfolio allocation

156,383.2
155,486.8
118,599.7
36,887.1
896.4

100.00%99.43%
75.84%
23.59%
0.57%

Market Value (¥billion)

Portfolio allocation

156,383.2
43,621.4
33,599.7
10,021.7
40,699.5
36,807.6
3,892.0
23,910.9
14,819.6
9,091.3
38,662.9
33,372.8
5,290.1
8,592.0
896.4

100.00%27.89%
21.49%
6.41%
26.03%
23.54%
2.49%
15.29%
9.48%
5.81%
24.72%
21.34%
3.38%
5.49%
0.57%

(Note 1) The figure in the market value column for FILP bonds includes accrued earnings in the book value amountbased on the amortized cost method.
(Note 2) The figures above are rounded, so the sum of each figure may not equal the total.

［2］Changes in the ratios of passive and active investment (market investments)
FY2001 FY2002 FY2003 FY2004 FY2005 FY2006 FY2007 FY2008 FY2009 FY2010 FY2011 FY2012 FY2013 FY2014 FY2015 FY2016 FY2017
Domestic
bonds

Passive

50.67% 61.36% 75.47% 78.58% 79.88% 77.97% 80.87% 82.26% 83.09% 82.05% 81.61% 90.48% 90.13% 86.10% 82.50% 79.38% 77.03%

Active49.33% 38.64% 24.53% 21.42% 20.12% 22.03% 19.13% 17.74% 16.91% 17.95% 18.39%

Domestic
equities

Passive44.24% 70.84% 77.02% 76.87% 76.19% 76.27% 76.41% 75.73% 75.26% 75.26% 76.23% 78.78% 87.69% 86.71% 81.52% 90.62% 90.44%

Active55.76% 29.16% 22.98% 23.13% 23.81% 23.73% 23.59% 24.27% 24.74% 24.74% 23.77% 21.22% 12.31% 13.29% 18.48%

Foreignbonds

Passive

71.42% 76.85% 73.30% 72.45% 72.04% 71.91% 72.31% 71.71% 70.93% 70.62% 70.87% 70.60% 71.70% 69.85% 64.94% 60.89% 61.98%

Active28.58% 23.15% 26.70% 27.55% 27.96% 28.09% 27.69% 28.29% 29.07% 29.38% 29.13% 29.40% 28.30% 30.15% 35.06% 39.11% 38.02%

Foreignequities

Passive

53.25% 79.03% 81.56% 79.86% 79.69% 79.85% 82.94% 85.35% 85.59% 86.23% 86.01% 86.74% 89.37% 88.05% 84.15% 86.45% 86.32%

Active46.75% 20.97% 18.44% 20.14% 20.31% 20.15% 17.06% 14.65% 14.41% 13.77% 13.99% 13.26% 10.63% 11.95% 15.85% 13.55% 13.68%

Passive50.07% 65.54% 74.89% 77.78% 78.06% 77.22% 79.53% 80.47% 79.67% 78.13% 76.65% 84.50% 86.00% 83.91% 79.28% 77.31% 76.28%

Active49.93% 34.46% 25.11% 22.22% 21.94% 22.78% 20.47% 19.53% 20.33% 21.87% 23.35% 15.50% 14.00% 16.09% 20.72% 22.69% 23.72%

Total

57

9.52%

9.87% 13.90% 17.50% 20.62% 22.97%

9.38%

9.56%

［3］Investment assets by manager,etc. (market value at the end of fisical 2017)(Unit : ¥billion)
Investment
methodAsset manager name (Subcontractor, etc.)

ManagerbenchmarkMarketValue

Asset Management One Co., Ltd. (former DIAM)ⅠBPI-TIPS

Asset Management One Co., Ltd.
(former Mizuho Trust & Banking) Ⅱ

MarketValue

1,083.8

Asset Management One Co., Ltd. (former DIAM)Ⅰ(Janus Capital Management LLC)

USAGG

466.2

BPI-TIPS

932.5

MU Investments Co., Ltd.

BPI-TIPS

695.0

Asset Management One Co., Ltd.
(former Mizuho Asset Management) Ⅱ(Loomis, Sayles & Company, L.P.)

G-AGG

561.8

Tokio Marine Asset Management Co., Ltd.

BPI-TIPS

930.0
626.7

Ashmore Japan Co., Ltd(Ashmore Investment Management Limited)

GBIEMGD

209.0

BPI-TIPS

AllianceBernstein Japan Ltd. (AllianceBernstein L.P.,etc.)

EMBIGD

89.3

BPI-TIPS

541.6

G-AGG

264.6

Manulife Asset Management (Japan) Limited

BPI-TIPS

416.5

Goldman Sachs Asset Management Co., Ltd.
(Goldman Sachs Asset Management, L.P., etc.)

Sumitomo Mitsui Trust Bank, Limited

BPI-TIPS

936.1

Schroder Investment Management (Japan) Limited(Schroder Investment Management Limited, etc)

G-AGG

515.3

Mitsubishi UFJ Trust and Banking Corporation

BPI-TIPS

931.6

G-AGG

683.3

In-house investment

Sompo Japan Nipponkoa Asset Management Co., Ltd.
(Colchester Global Investors Limited)-

2,921.2

In-house investmentⅠ

BPI

1,341.0

Nomura Asset Management Co., Ltd.Ⅰ(Franklin Advisers, Inc.)

G-AGG

685.9

In-house investment Ⅱ

BPI-G

9,155.3

127.9

In-house investment Ⅲ

BPI-C

14,657.3

Nomura Asset Management Co., Ltd. Ⅱ
USHY2%(Nomura Corporate Research And Asset Management Inc.)

Asset Management One Co., Ltd.
(former Mizuho Trust & Banking)

122.8

1,136.9

Nomura Asset Management Co., Ltd. Ⅲ(MacKay Shields LLC)

USHY2%BPI

State Street Global Advisors (Japan) Co., Ltd.

BPI

1,272.4

BNP Paribas Asset Management Japan Limited(BNP Paribas Asset Management USA,Inc.)

WGILB

135.4

Sumitomo Mitsui Trust Bank, LimitedⅠ

BPI

1,272.8

BNY Mellon Asset Management Japan Limited
EUROAGG(Insight Investment Management (Global) Limited)

536.9

Sumitomo Mitsui Trust Bank, Limited Ⅱ

BPI-G

3,187.1

PGIM Japan Co., Ltd.(PGIM,Inc.,etc)

G-AGG

736.0

Mitsubishi UFJ Trust and Banking Corporation

BPI-G

1,576.8

Asset Management One Co., Ltd. (former DIAM)Ⅰ

TOPIX

645.6

PIMCO Japan Ltd.
(Pacific Investment Management Company LLC, etc.)

G-AGG

722.4

Asset Management One Co., Ltd.
(former Mizuho Asset Management) Ⅱ

RN-S

108.9

FIL Investments (Japan) Limited(Fidelity Institutional Asset Management)

USAGG

463.9

Eastspring Investments Limited(Eastspring Investments (Singapore) Limited)

TOPIX

276.2

BlackRock Japan Co., Ltd.
(BlackRock Financial Management, Inc., etc)

G-AGG

433.1

Invesco Asset Management（Japan) Limited

TOPIX

217.3

Manulife Asset Management (Japan) Limited(Manulife Asset Management (US) LLC)

G-AGG

703.7

Capital International K.K. (Capital International, Inc.)

TOPIX

495.4

687.6

RN-V

395.6

Morgan Stanley Investment Management (Japan）Co., Ltd.
(Morgan Stanley Investment Management, Inc., etc.)

G-AGG

JPMorgan Asset Management(Japan) Ltd.
Schroder Investment Management (Japan) Limited

TOPIX

287.2

UBS Asset Management (Japan) Ltd.
(UBS Asset Management (UK) Ltd)EUROHY
2%

Domestic
equities
activeinvestment

163.9

Leg Mason Asset Management (Japan) Co., Ltd.
(Brandywine Global Investment Management, LLC)

G-AGG

601.0

WGBI

1,834.9

Domestic
equities
passiveinvestment

Foreignbonds
activeinvestment

SEIRYU Asset Management Ltd. (Taiyo Pacific Partners LP)

RN-S

11.4

Daiwa SB Investments Ltd.

RN-V

408.6

Nikko Asset Management Co., Ltd.

TOPIX

319.8

Asset Management One Co., Ltd.
(former Mizuho Trust & Banking)Nomura Asset Management Co., Ltd.Ⅰ

RN-S

58.4

State Street Global Advisors (Japan) Co., Ltd.

WGBI

1,876.4

Nomura Asset Management Co., Ltd.

WGBI

2,394.1

BlackRock Japan Co., Ltd.Ⅰ

WGBI

2,653.6

BlackRock Japan Co., Ltd. Ⅱ

USGOV
1-3Y

115.5

Nomura Asset Management Co., Ltd. Ⅱ(Dimensional Fund Advisors L.P.)

MSCI-JS

172.1

FIL Investments (Japan) Limited

TOPIX

392.9

Russell Investments Japan Co., Ltd.
(Russell Investments Implementation Services, LLC.)

TOPIX

101.2

BlackRock Japan Co., Ltd. Ⅲ

EGBI

520.5

Asset Management One Co., Ltd. (former DIAM)ⅠTOPIX

9,562.3

Sumitomo Mitsui Trust Bank, Limited

WGBI

1,836.7

Asset Management One Co., Ltd. (former DIAM) Ⅱ

JPX

548.8

Resona Bank, Limited.Ⅰ

WGBI

2,354.1
239.3
994.5

Foreignbonds
passiveinvestment

Asset Management One Co., Ltd.
(former Mizuho Trust & Banking) Ⅲ

RN-P

1,643.5

Resona Bank, Limited. Ⅱ

USGOV
1-3Y

Asset Management One Co., Ltd. Ⅳ

FTSE-BL

87.8

Resona Bank, Limited. Ⅲ

EGBI

Goldman Sachs Asset Management Co., Ltd.
(Goldman Sachs Asset Management, L.P., etc.)

SP-G

2,023.9

Nomura Asset Management Co., Ltd.

RAFI

1,855.2

BlackRock Japan Co., Ltd.Ⅰ

TOPIX

6,960.7

BlackRock Japan Co., Ltd. Ⅱ

MSCI-J

316.2

BlackRock Japan Co., Ltd. Ⅲ

FTSE-BL

438.9

Sumitomo Mitsui Trust Bank, LimitedⅠ

TOPIX

3,852.0

Sumitomo Mitsui Trust Bank, Limited Ⅱ

JPX

592.2

Mitsubishi UFJ Trust and Banking CorporationⅠ

TOPIX

7,060.2

Mitsubishi UFJ Trust and Banking Corporation Ⅱ

JPX

854.7

Mitsubishi UFJ Trust and Banking Corporation Ⅲ

MSCI-ESG

622.9

Mitsubishi UFJ Trust and Banking Corporation Ⅳ

MSCI-WIN

388.4

Chapter3

ManagerbenchmarkDomestic
PGIM Japan Co., Ltd.
bonds active
investment PIMCO Japan Ltd.
(Pacific Investment Management Company LLC, etc.)

Domestic
bonds
passiveinvestment(Unit : ¥billion)
Asset manager name (Subcontractor, etc.)

Investment
method58

Reference Data ｜ 1 Investment Assets by Investment Method and by Manager, etc.

(Unit : ¥billion)
Investment
methodForeignequities
activeinvestment

ManagerbenchmarkMarketValue

Asset Management One Co., Ltd.
(former Mizuho Asset Management)(Wells Capital Management Inc.)

MSCI-E

99.7

Amundi Japan Ltd.

MSCI-K

835.8

Wellington Management Japan Pte Ltd.
(Wellington Management Company LLP.)MSCI-K

653.6

MFS Investment Management K.K.
(Massachusetts Financial Services Company)

MSCI-K

561.2

Nikko Asset Management Co., Ltd.
(INTECH Investment Management LLC)

MSCI-K

829.0

Nomura Asset Management Co., Ltd.Ⅰ

MSCI-E

111.3

Nomura Asset Management Co., Ltd. Ⅱ(Dimensional Fund Advisors L.P.)

MSCI-E

40.9

BNY Mellon Asset Management Japan Limited(Walter Scott & Partners Limited)

MSCI-K

596.3

Mitsubishi UFJ Trust and Banking Corporation(Baillie Gifford Overseas Limited)

MSCI-K

703.9

UBS Asset Management (Japan) Ltd.
(UBS Asset Management (UK) Ltd)MSCI-K

768.6

Lazard Japan Asset Management K.K.
(Lazard Asset Management LLC)

MSCI-E

64.9

Asset Management One Co., Ltd.
(former Mizuho Trust & Banking)

MSCI-A

4,968.2

State Street Grobal Advisors (Japan) Co., Ltd.Ⅰ

MSCI-A

5,930.2

State Street Grobal Advisors (Japan) Co., Ltd. Ⅱ

MSCI EU

45.9

State Street Grobal Advisors (Japan) Co., Ltd. Ⅲ

MSCI-E

58.4

BlackRock Japan Co., Ltd.

MSCI-A

5,015.0

Sumitomo Mitsui Trust Bank, Limited

MSCI-A

5,842.6

Mitsubishi UFJ Trust and Banking Corporation

MSCI-A

5,677.2

Resona Bank, Limited.

MSCI-A

Gatekeeper: Nomura Asset Management Co., Ltd.
Fund of Funds Manager: Pantheon

Asset manager name (Subcontractor, etc.)

Manager's benchmark

source of benchmark

BPI

NOMURA-BPI (excluding ABS)

Nomura ResearchInstitute,Ltd.

BPI-CNOMURA-BPI/GPIF Customized

Nomura Securities
Co,Ltd.

BPI-G

Nomura-BPI government bonds

Nomura ResearchInstitute,Ltd.

BPI-TIPS

Nomura-BPI plus inflation-Linked bonds

Nomura ResearchInstitute,Ltd.

TOPIX

TOPIX (incl. dividends)

Tokyo Stock
Exchange,Inc.

JPX

JPX-Nikkei Index 400 (incl. dividends)

Tokyo Stock
Exchange,Inc.

MSCI-JMSCI Japan Standard (incl. dividends)

MSCI G.K.

MSCI-JSMSCI Japan Small (incl. dividends)

MSCI G.K.

RAFI

Nomura RAFI reference Index

Nomura AssetManagement Co., Ltd.

RN-P

RUSSELL/NOMURA Prime Index(incl. dividends)

Nomura ResearchInstitute,Ltd.

5,835.3

RN-S

RUSSELL/NOMURA Small Cap Index(incl. dividends)

Nomura ResearchInstitute,Ltd.

-

10.7

RN-V

RUSSELL /NOMURA Large Cap Value Index(incl. dividends)

Nomura ResearchInstitute,Ltd.

Alternative Gatekeeper: Sumitomo Mitsui Asset Management Company,Limited
infrastructure Fund of Funds Manager: StepStone Infrastructure & Real Assets

-

39.3

SP-G

S&P GIVI Japan (Gross Total Return)S&P Opco,LLC

In-house investment(Unit Trust Manager: Nissay Asset Management Corporation)

-

146.7

FTSE-BLFTSE Blossom Japan Index

FTSE International
LimitedAlternative In-house investment
private equity (Unit Trust Manager: Nissay Asset Management Corporation)

MSCI-ESGMSCI Japan ESG Select Leaders Index

MSCI G.K.

-

8.2

MSCI-WINMSCI Japan Empowering Women Index (WIN) MSCI G.K.

Alternative
real estate

Mitsubishi UFJ Trust and Banking Corporation

-

8.1

WGBI

FTSE World Government Bond Index(not incl. JPY, no hedge/JPY basis)

FTSE Fixed Income
LLC

In-house investmentⅠ-

8,589.7

In-house investment Ⅱ

G-AGG

-

2.2

Bloomberg Barclays Global Aggregate Index(not incl. JPY, no hedge/JPY basis)

Bloomberg Index
Services Limited-

155,485.5

USAGG

Bloomberg Barclays US Aggregate Index(no hedge/JPY basis)

Bloomberg Index
Services Limited

EUROAGG

Bloomberg Barclays EURO Aggregate Index(no hedge/JPY basis)

Bloomberg Index
Services Limited

USHY2%

Bloomberg Barclays U.S. Corporate High Yield 2%
Issuer Capped Bond Index (no hedge/JPY basis)

Bloomberg Index
Services Limited

EUROHY2%

Bloomberg Barclays EURO Corporate High Yield 2%
Issuer Capped Bond Index (no hedge/JPY basis)

Bloomberg Index
Services Limited

GBI-EMGD

J.P. Morgan Government Bond Index-Emerging Markets
Global Diversified Index (no hedge/JPY basis)

J.P.Morgan Securities
LLC

EMBIGD

J.P. Morgan EMBI Global Diversified(no hedge/JPY basis)

J.P.Morgan Securities
LLC

WGILB

Bloomberg Barclays World Government
Inflation-Linked Bond Index(not incl. JPY, no hedge/JPY basis)

Bloomberg Index
Services Limited

EGBI

FTSE EMU Government Bond Index(no hedge/JPY basis)

FTSE Fixed Income
LLC

USGOV 1-3Y

FTSE US Government Bond Index 1-3years(no hedge/JPY basis)

FTSE Fixed Income
LLC

MSCI-KMSCI KOKUSAI(JPY basis, incl. dividends, after taking into
account our dividend tax factors)

MSCI G.K.

MSCI-EMSCI EMERGING MARKETS(JPY basis, incl. dividends, after deducting taxes)

MSCI G.K.

MSCI-AMSCI ACWI(not incl. JPY, JPY basis, incl. dividends, after
taking into account our dividend tax factors)

MSCI G.K.

MSCI - EU

MSCI Europe & Middle East
(JPY basis, incl. dividends, after taking into
account our dividend tax factors)

MSCI G.K.

Foreignequities
passiveinvestment

Short-term
assetsSubtotal
FILP bonds
Total

In-house investment

-

896.4

36 companies, 104 Funds-

156,381.9

(Unit : ¥billion)
Investment
methodCustody

Security
lending

Custodian etc. nameMarketValue

Trust & Custody Services Bank, Ltd.
(Domestic bonds, short-term assets)

53,100.6

Japan Trustee Services Bank,Ltd. (Domestic equities)

40,698.3

State Street Trust and Banking Co., Ltd(Foreign bonds, alternative assets, short-term assets)

23,945.6

The Master Trust Bank of Japan, Ltd. (Foreign equities)

38,638.1

Trust & Custody Services Bank, Ltd. [In-house investmentⅠ]

330.0

Trust & Custody Services Bank, Ltd. [In-house investment Ⅱ]

3,400.0

Trust & Custody Services Bank, Ltd. [In-house investment Ⅲ]

5,698.0

BlackRock Japan Co., Ltd. (Foreign bonds)(BlackRock Asset Management North Asia Limited)

Transition
management Russell Investments Japan Co., Ltd. (Foreign equities)(Russell Investments Implementation Services,LLC.)

59(Note 1) The figure in the market value column for FILP bonds includes accrued
earnings in the book value amount based on the amortized cost method.
(Note 2) The 36 asset managers in the total column does not include in-house
investment, but the 104 funds in the total column include 9 in-house
investment funds.
(Note 3) The figure in the total market value column for funds managed by asset
managers (104 funds managed by 36 managers) does not include
accrued dividend income from closed funds (statutory trust accounts).
(Note 4) Figures in the market value column for custodians do not include accrued
dividend income (foreign equities: ¥0.6 billion) from closed funds(statutory trust accounts).
(Note 5) Figures in the market value column for securities lending investment are
the principal (face value) of bond lending investment.
(Note 6) Managers’ benchmarks are shown in the table below and the sourcesof those benchmarks are as listed in the right-hand column of the tablebelow.

Domesticbonds

Domestic
equities

Foreign
bonds

0.6
0.1

Foreignequities

Reference Data ｜ 1 Investment Assets by Investment Method and by Manager, etc.

［4］Investment performance by manager, etc.
① Investment performance (over the last year) (from April 2017 to March 2018)
Investment
methodDomestic
bonds
passiveinvestment

Domestic
bonds
activeinvestment

Domestic
equities
passiveinvestment

Foreignbonds
passiveinvestment

Time-weighted return(A)

Benchmark return Excess rate of return remarks(B)(C)=(A)-(B)columnIn-house investmentⅠ

0.96%

0.90%

+0.05%

In-house investment Ⅱ

0.99%

0.94%

+0.05%

In-house investment Ⅲ

0.27%

0.29%

-0.01%

Asset Management One Co., Ltd. (former Mizuho Trust & Banking)

0.92%

0.90%

+0.01%

State Street Global Advisors (Japan) Co., Ltd.

0.92%

0.90%

+0.01%

Sumitomo Mitsui Trust Bank, LimitedⅠ

0.94%

0.90%

+0.03%

Sumitomo Mitsui Trust Bank, Limited Ⅱ

0.99%

0.94%

+0.04%

Mitsubishi UFJ Trust and Banking Corporation

1.00%

0.94%

+0.06%

Asset Management One Co., Ltd. (former DIAM) Ⅰ

1.16%

0.90%

+0.26%

Asset Management One Co., Ltd. (former Mizuho Trust & Banking) Ⅱ

1.25%

0.90%

+0.35%MU Investments Co., Ltd.

1.05%

0.90%

+0.15%

Tokio Marine Asset Management Co., Ltd.

1.19%

0.90%

+0.29%PGIM Japan Co., Ltd.

1.46%

0.90%

+0.56%PIMCO Japan Ltd.

1.33%

0.90%

+0.43%

Manulife Asset Management (Japan) Limited

1.95%

0.90%

+1.05%

Sumitomo Mitsui Trust Bank, Limited

1.27%

0.90%

+0.37%

Mitsubishi UFJ Trust and Banking Corporation

1.10%

0.90%

+0.20%

In-house investment

1.44%

-

-

Asset Management One Co., Ltd. (former DIAM)Ⅰ

15.86%

15.87%-0.00%

Asset Management One Co., Ltd. (former DIAM) Ⅱ

14.71%

14.69%+0.02%

Asset Management One Co., Ltd. (former Mizuho Trust & Banking) Ⅲ

15.60%

15.60%+0.00%

Asset Management One Co., Ltd. Ⅳ-5.96%-5.98%+0.02%

Goldman Sachs Asset Management Co., Ltd.

13.81%

13.67%+0.14%

Nomura Asset Management Co., Ltd.

12.70%

12.68%+0.02%

BlackRock Japan Co., Ltd.Ⅰ

15.89%

15.87%+0.02%

BlackRock Japan Co., Ltd. Ⅱ

14.62%

14.57%+0.06%

BlackRock Japan Co., Ltd. Ⅲ

7.90%

7.88%

+0.02%

Sumitomo Mitsui Trust Bank, LimitedⅠ

15.85%

15.87%-0.01%

Sumitomo Mitsui Trust Bank, Limited Ⅱ

14.66%

14.69%-0.03%

Mitsubishi UFJ Trust and Banking CorporationⅠ

15.89%

15.87%+0.02%

Mitsubishi UFJ Trust and Banking Corporation Ⅱ

14.71%

14.69%+0.02%

Mitsubishi UFJ Trust and Banking Corporation Ⅲ

6.41%

6.39%

+0.01%○

Mitsubishi UFJ Trust and Banking Corporation Ⅳ

6.80%

6.80%

+0.00%○

Asset Management One Co., Ltd. (former DIAM)Ⅰ

14.06%

15.87%-1.81%

Asset Management One Co., Ltd. (former Mizuho Asset Management) Ⅱ

59.27%

22.39%+36.88%Eastspring Investments Limited

13.10%

15.87%-2.77%

Invesco Asset Management（Japan) Limited

18.11%

15.87%+2.25%

Capital International K.K.

18.45%

15.87%+2.58%

JPMorgan Asset Management(Japan) Ltd.

12.61%

11.30%+1.31%

Schroder Investment Management (Japan) Limited

20.52%

15.87%+4.66%SEIRYU Asset Management Ltd.

28.45%

22.39%+6.06%

Daiwa SB Investments Ltd.

12.43%

11.30%+1.12%

Nikko Asset Management Co., Ltd.

13.68%

15.87%-2.19%

Nomura Asset Management Co., Ltd.Ⅰ

20.32%

20.13%+0.18%

Nomura Asset Management Co., Ltd. Ⅱ

31.96%

22.39%+9.57%FIL Investments (Japan) Limited

29.39%

15.87%+13.52%○○Russell Investments Japan Co., Ltd.

19.67%

15.87%+3.80%

Asset Management One Co., Ltd. (former Mizuho Trust & Banking)

4.33%

4.23%

+0.10%

State Street Global Advisors (Japan) Co., Ltd.

4.36%

4.23%

+0.13%

Nomura Asset Management Co., Ltd.

4.39%

4.23%

+0.16%

BlackRock Japan Co., Ltd.Ⅰ

4.47%

4.23%

+0.24%

BlackRock Japan Co., Ltd. Ⅱ-4.33%-4.54%+0.21%

BlackRock Japan Co., Ltd. Ⅲ

6.04%

5.99%

+0.05%

Sumitomo Mitsui Trust Bank, Limited

4.35%

4.23%

+0.12%

Resona Bank, Limited.Ⅰ

4.31%

4.23%

+0.08%

Resona Bank, Limited. Ⅱ

2.66%

2.64%

+0.02%○

Resona Bank, Limited. Ⅲ-2.12%-2.14%+0.02%○

Chapter3

Domestic
equities
activeinvestment

Asset manager name○60

Reference Data ｜ 1 Investment Assets by Investment Method and by Manager, etc.

Investment
methodForeignbonds
activeinvestment

Foreignequities
passiveinvestment

Foreignequities
activeinvestment

Asset manager nameTime-weighted return(A)

Benchmark return Excess rate of return remarks(B)(C)=(A)-(B)columnAsset Management One Co., Ltd. (former DIAM)Ⅰ-3.25%-3.41%+0.16%

Asset Management One Co., Ltd. (former Mizuho Asset Management) Ⅱ

3.45%

2.35%

+1.10%

Ashmore Japan Co., Ltd

10.97%

7.84%+3.14%

AllianceBernstein Japan Ltd.

-0.96%-1.92%+0.96%

Goldman Sachs Asset Management Co., Ltd.

1.73%

2.25%

-0.52%

Schroder Investment Management (Japan) Limited

2.85%

2.35%

+0.50%

Sompo Japan Nipponkoa Asset Management Co., Ltd.

3.96%

2.35%

+1.61%

Nomura Asset Management Co., Ltd.Ⅰ-1.96%

2.35%-4.31%

Nomura Asset Management Co., Ltd. Ⅱ-0.70%-0.95%+0.25%

Nomura Asset Management Co., Ltd. Ⅲ-1.64%-0.95%-0.69%BNP Paribas Asset Management Japan Limited

4.43%

3.72%

+0.71%BNY Mellon Asset Management Japan Limited

13.98%

12.34%+1.64%PGIM Japan Co., Ltd.

6.24%

2.35%

+3.88%PIMCO Japan Ltd.

3.28%

2.35%

+0.93%FIL Investments (Japan) Limited-1.59%-3.41%+1.83%

BlackRock Japan Co., Ltd.

1.65%

1.86%

-0.21%

Manulife Asset Management (Japan) Limited-1.59%

2.35%-3.94%Morgan Stanley Investment Management (Japan）
Co., Ltd.

4.91%

2.35%

+2.55%UBS Asset Management (Japan) Ltd.

13.43%

13.31%+0.11%Leg Mason Asset Management (Japan) Co., Ltd.

5.56%

2.35%

+3.21%

Asset Management One Co., Ltd. (former Mizuho Trust & Banking)

9.75%

9.70%

+0.05%-0.01%

State Street Grobal Advisors (Japan) Co., Ltd.Ⅰ

9.69%

9.70%

State Street Grobal Advisors (Japan) Co., Ltd. Ⅱ-6.61%-6.59%-0.02%

BlackRock Japan Co., Ltd.

9.74%

9.70%

+0.04%

Sumitomo Mitsui Trust Bank, Limited

9.80%

9.70%

+0.10%

Mitsubishi UFJ Trust and Banking Corporation

9.73%

9.70%

+0.03%

Resona Bank, Limited.

9.70%

9.70%

+0.00%

Asset Management One Co., Ltd. (former Mizuho Asset Management)

17.36%

19.23%-1.88%

Amundi Japan Ltd.

8.31%

8.39%

-0.08%

Wellington Management Japan Pte Ltd.

11.78%

8.39%+3.39%MFS Investment Management K.K.

8.37%

8.39%

-0.03%

Nikko Asset Management Co., Ltd.

12.10%

8.39%+3.71%

Nomura Asset Management Co., Ltd.Ⅰ

14.73%

19.23%-4.50%

Nomura Asset Management Co., Ltd. Ⅱ

15.51%

19.23%-3.72%BNY Mellon Asset Management Japan Limited

11.54%

8.39%+3.15%

Mitsubishi UFJ Trust and Banking Corporation

21.52%

8.39%+13.13%

UBS Asset Management (Japan) Ltd.

15.58%

8.39%+7.19%

Lazard Japan Asset Management K.K.

20.38%

19.23%+1.15%○○② Investment performance (alternative assets)
IRR(local currency)

Local
currency

Start ofinvestment-

USD

February 2018-

USD

January 2018

1.68%

USD

February 2014-5.85%-9.57%

USD

June 2015

-

-

JPY

December 2017

Alternative
AssetsInvestment Style
Global-Core

Nomura Asset Management Co., Ltd.

-Infrastructure

Global-Core

Sumitomo Mitsui Asset Management Company,Limited-

Global-CoreIn-house investment

5.39%

Private equity Emerging markets-Diversified

In-house investment

Real estate

Mitsubishi UFJ Trust and Banking Corporation

Japan-Core

Asset manager name

IRR
(JPY)

(Note 1) Funds are listed in the order of the Japanese syllabary.
(Note 2) Asset managers entrusted with investment for more than one contract using the same investment method are indicated with Roman figures.
(Note 3) The time-weighted return and the benchmark return are annualized rates that exclude the effect of the trade suspended period for asset transfer.
(Note 4) Excess returns and information ratio may not equal the value calculated with figures in the table because the figures are rounded off to two decimal places.
(Note 5) Time-weighted returns of in-house investment passive domestic bond funds, passive foreign bond funds, some of the active funds and passive foreign equity funds
include returns from securities lending investment.
(Note 6) Internal rate of return (IRR) is a rate of return calculated by taking into account the effects of the size and timing of cash flows of investment target funds during theinvestment period. The calculation period of IRR is from the start of investment to the end of the current fiscal year.
(Note 7) Actual investments in alternative assets are denominated in major investment currencies. IRR (yen-denominated funds) is calculated by converting cash flows
denominated in major investment currencies into yen at the going market exchange rate and is subject to exchange rate fluctuations throughout the investment period.
(Note 8) A circle in the remarks column indicates an external asset manager with less than one year of investment period. The rates of returns of external asset managers withless than one year of investment period show periodic rates of returns. The rate of returns for investments in alternative assets show the rate of returns of investment
products with an investment period of one year or more.

61

Code of Conduct【1】Social responsibility◆ 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 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 Chairperson and the member of the Board ofGovernors 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 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 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 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】
Appropriate 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 GPIF, and act
accordingly.
◆【8】
Developing human resources and respect in the workplace◆ We are committed to 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 executives,

staff, or other related personnel, such activity shall be immediately reported to GPIF throughvarious 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.

62