Operation Policy(Enacted: April 1, 2006)(Latest revision: February 8,2024)

The Government Pension Investment Fund (GPIF) establishes specific policies on the
management and investment of its pension reserve fund (including management
reserve fund [refers to management reserve fund defined in Article 79-6, paragraph 1of the Employees’ Pension Insurance Law]) (hereinafter referred to as the “Operation
Policy”) as follows, pursuant to the policy of the medium-term plan provided in the Act
on General Rules for Incorporated Administrative Agency (Act No. 103 of 1999;
hereinafter referred to as the “Act on General Rules”) and Article 20 of the Act on the
Government Pension Investment Fund (Act No. 105 of 2004; hereinafter referred to as
the “Individual Act”) (hereinafter referred to as the “Medium-Term Plan”), andpursuant to the policies on the management and investment provided in Article 79-6,
paragraph 1 of the Employees’ Pension Insurance Law (Act No. 115 of 1954)(hereinafter referred to as the “Management and Investment Policy”). With the aim ofachieving the medium-term targets specified by the Minister of Health, Labour andWelfare (hereinafter referred to as the “Medium-Term Objectives”) pursuant to the Act
on General Rules, GPIF shall conduct management and investment operations inaccordance with the Operation Statement, the Medium-Term Plan, the Management
and Investment Policy and the Operation Policy based on the Investment Principles
and Code of Conduct of GPIF.
I. Pension Reserve Fund Management and Investment Objectives
In order to achieve the investment target stipulated in the Medium-Term Plan and
the Management and Investment Policy, GPIF has established the following
objectives for management and investment of the pension reserve fund (the same
applies hereinafter except for in section II item 2(1)) , which is stipulated in article 3of the Operation Statement .
1. Management and Investment Objectives Pertaining to the Medium-Term Plan
GPIF aims to achieve the following objectives as specified in the Medium-Term
Plan and the Management and Investment Policy:
・GPIF shall manage and invest the pension reserve fund based on the principle of1

investment diversification, and determine asset class proportions (hereinafterreferred to as the “Policy Asset Mix”)

from a long-term perspective.

・By appropriately selecting, managing and evaluating external asset managers,
GPIF shall strive to achieve the evaluation benchmark investment return for theentire investment portfolio and for each individual asset class during each fiscal
year and for theentire Medium-Term Objective period.

2. Five-Year Investment Objective
In addition to the objectives stated in item 1, GPIF shall strive to achieve theevaluation benchmark investment return for each asset class specified in the
Policy Asset Mix over a five year period, and use these results in the evaluation
outlined in section VIII item 1(1).
3. Evaluation Benchmark
GPIF has defined the evaluation benchmarks specified in items 1 and 2 as per
Exhibit 1.
II. Pension Reserve Fund Asset Allocation and Management and Investment
Methodology
1. Asset Allocation(1) Policy Asset Mix(i) Management and investment based on the Policy Asset Mix
GPIF shall manage and invest the pension reserve fund in accordance with
the Policy Asset Mix.
(ii) Policy Asset Mix Review
GPIF shall examine the Policy Asset Mix on a timely and appropriate basis
over the course of the Medium-Term Objective period, and consider revising
the Policy Asset Mix if deemed necessary by the Board of Governors due toreasons such as a drastic change in the investment environment from the timein which the Policy Asset Mix was originally defined.
In addition, GPIF shall examine the Reference Asset Mix (i.e., the target asset
allocation of the reserve fund as jointly specified by the Management andInvestment Entities* (same applies in (ii)) as deemed necessary incollaboration with the other Management and Investment Entities.

2

*GPIF, the Federation of National Public Service Personnel Mutual Aid
Associations, the Pension Fund Association for Local Government Officials andthe Promotion and Mutual Aid Corporation for Private Schools of Japan (sameapplies in (ii)).
(2) Investable Assets
GPIF may invest in domestic bonds, domestic equities, foreign bonds, foreign
equities and short-term assets, and in derivatives on those assets. GPIF may
also lend bonds and foreign equities (including lending in securities trusts).
GPIF may invest in alternative assets (infrastructure, private equity, real estateand other assets approved by the Board of Governors), which shall be classified
into domestic bonds, domestic equities, foreign bonds and foreign equities
according to their respective risk-return profiles. GPIF shall classify foreign
bonds with foreign currency hedging and yen-denominated short-term assets as
domestic bonds, and foreign currency-denominated short-term assets as foreign
bonds.

2. Management and Investment Methodology(1) Pension Reserve Fund Asset Allocation(i) Changes in Asset Allocation
If the asset class ratios of the Pension Reserve Fund as a whole (i.e., thereserve funds in the Employees’ Pension Insurance and the National Pension;
the same applies in (iv)) deviate from the Policy Asset Mix beyond thepermissible ranges assets may be reallocated so that the deviation falls withinthese ranges.
(ii) Consideration of Market Situations When Changing Asset Allocation
The changes in asset allocation pursuant to the provisions of (i) may be
implemented depending on market situations.
(iii) Flexible Investment
In light of quickly changing economic and market environments over recent
years, GPIF will flexibly manage investments based on an appropriate,
reasonably grounded outlook for the market environment and subject to thedeviation bands for the Policy Asset Mix.

3

(iv) Maximum Allocation to Alternative Assets
The alternative assets allocation will be managed by comparing the value ofalternative assets categorized as domestic bonds, domestic equities, foreign
bonds and foreign equities as a proportion of the aggregate pension reserve
fund with the maximum alternative asset allocation for the Policy Asset Mix.
(2) Pension Reserve FundGPIF shall manage and invest pension reserve fund as follows:(i) The Investment of pension reserve fund Shall be Made Using the Following
Methods/Instruments:(a) Separately-managed discretionary trust with a trust company (including abank that operates trust business; the same applies hereinafter);(b) Non-discretionary trust with a trust company, provided, however, that it islimited to those invested under a discretionary investment agreement with afinancial instruments business operator;(c) Payment of life insurance premiums; and(d) In-house investment (including that managed by a non-discretionary trustwith a trust company).
(ii) Investment Methods of Pension Reserve Fund
Except in cases such as responding to payouts, pension reserve fund shall be
invested both passively (i.e., tracking the manager benchmark stipulated in
section III item 2) and actively (i.e., gaining excess return against the manager
benchmark stipulated in section III item 2), in principle.
(iii) Risk Management of Pension Reserve Fund for the Whole Asset and for
Each Asset
With regard to risk management of pension reserve fund for the whole asset
and for each asset, necessary risk profiles shall be monitored each month, andif the risk profile is not appropriate, proper measures such as making changes
to the asset allocation shall be taken.
(iv) Supervision by the Board of Governors
Upon introducing new methods, matters deemed by the Board of Governors asmaterial shall be implemented in accordance with the resolution thereof.

4(3) Performance Attribution Analysis Relative to Composite Benchmark Return
GPIF shall conduct a performance attribution analysis relative to returns for thecomposite benchmark for each fiscal year.
(4) Consistency with Pension Special Account Cash Flows
GPIF shall coordinate closely with the Pension Special Account administrator(the administrator for the Employees’ Pension Account and National Pension
Account) to preserve the liquidity (cash and cash equivalents) necessary forbenefit and other payments, and manage cash efficiently.

In the course of doing

so, GPIF shall give adequate consideration to market price formation, sell assets
in an orderly fashion and secure sufficient funds.
(5) Stewardship Initiatives
GPIF shall create and disclose its policy (hereinafter referred to as the “Policy to
Fulfill Stewardship Responsibilities”) for engaging in initiatives related toJapan’s Stewardship Code (i.e., “Principles for Responsible Institutional
Investors” established by the Financial Services Agency; the same applies
hereinafter).
In addition, as part of its stewardship role, GPIF shall participate in theactivities of the Principles for Responsible Investment (PRI). Each fiscal year
GPIF shall publish its stewardship activities, including interviews it conductswith its asset managers about their stewardship activities.
III. External Asset Managers
1. Basic Matters
GPIF shall request external asset managers (i.e., trust companies, financial
instruments business operators or life insurance companies that manage or invest
in pension reserve fund when investing under methods described in section II item
2(2)(i)(a) through (c) and that are not trust and custody services providers definedin section IV item 1; the same applies hereinafter) to make reports concerning themanagement and investment of funds (the investment in the case of financial
instruments business operators; the same applies in items 1 and 2(4)(i)) as of theend of each month or request the submission of necessary materials as needed.

5

GPIF shall hold regular meetings with each investment manager on the
management and investment of the funds on a regular basis, and provide
necessary instructions to the external asset managers based on their reports.
2. Investment Guidelines
When investing under the methods described in section II item 2(2)(i)(a) through(c), according to the profile of the assets, GPIF shall provide to external asset
managers the investment guidelines of investment methods, investment objectives,
risk management, benchmarks (hereinafter referred to as the “Manager
Benchmark”) and other matters described below. GPIF shall monitor thecompliance of the investment guidelines and provide necessary instructions to theexternal asset managers.
(1) Investment Guidelines by Asset Class
External asset managers shall comply with the following requirements for each
asset.
(i) Domestic Bonds(a) The investable bonds in this asset class shall be yen-denominated bonds(including convertible bonds, perpetual bonds and bank loan investment
trust beneficiary certificates). In the case of active investment, sufficientresearches and analyses upon terms and conditions of the issuance such as
the bond’s rating, coupon, maturity date and liquidity have to be done inselecting each bond.
(b) Appropriate diversification in issuers and maturities shall be sought inaccordance with the investment method.
(c) The investable bonds which exclude Government bonds, municipal bonds
and certain bonds issued by corporations under special laws (particularly
limiting to those with guarantee from government) have to have a BBB
rating or higher from any of the rating agencies stipulated in Exhibit 2(hereinafter referred to as the “Rating Agencies”). In case of the bonds
without ratings, the issuer or the guarantor has to fulfill the samerequirement of rating. However, this does not apply to cases where GPIF
has acknowledged beforehand that there are reasonable grounds
notwithstanding the rating requirement above due to the nature of theinvestment method.
(d) Measures such as sale shall be taken for bonds described in (c) (excluding

6

those pertaining to the proviso therein) whose rating by any of the Rating
Agencies has fallen below BBB after purchase, upon adequate consideration
to the issuer’s default risk.
(ii) Domestic Equities(a) The investable equities in this asset class shall be issues of shares floatedon domestic securities exchanges (including real estate investment trust
beneficiary certificates, preferred shares and preferred securities). In thecase of active investment, the issue shall be selected upon sufficientresearch and analysis of the business operation of the target company andliquidity of the issue.
(b) Appropriate diversification in industries and securities shall be sought inaccordance with the investment method.
Investment in equities issued by the same company shall be no more than
5% of total equities outstanding of the company for each external asset
manager.
(iii) Foreign Bonds(a) The investable bonds in this asset class shall be foreign currencydenominated bonds (including convertible bonds, perpetual bonds and bankloan investment trust beneficiary certificates). In the case of active
investment, at first the country and the currency to invest have to be
selected, after sufficient investigation of political and economic stability, as
well as specific characteristics of the settlement system and tax rules. Then,
researches and analyses upon terms and conditions of the issuance such as
the bond’s rating, coupon, maturity date, and liquidity have to be done inselecting each bond.
(b) Appropriate diversification in issuers and maturities shall be sought inaccordance with the investment method.
(c) The investable bonds shall have a BBB rating or higher from any of the
Rating Agencies. For those bonds without issue ratings, the same condition
applies to the issuer or guarantee agencies of them. However, this does not
apply to cases where GPIF has acknowledged beforehand that there arereasonable grounds notwithstanding the above such as cases where theinvestment shall be in an issue that does not meet this rating requirement
due to the nature of the investment method.

7

(d) Measures such as sale shall be taken for bonds described in (c) (excluding
those pertaining to the proviso therein) whose rating by any of the Rating
Agencies has fallen below BBB after purchase, upon adequate consideration
to the issuer’s default risk.
(iv) Foreign Equities(a) The investable equities in this asset class shall be issues of foreign
currency-denominated shares floated on securities exchanges and over-thecounter markets of foreign countries (including real estate investment trust
beneficiary certificates and preferred shares). In the case of active
investment, the investable country and currency shall be selected upon
sufficient research on market characteristics such as political and economic
stability, settlement system, and tax system, and the issue shall be selected
upon sufficient research and analysis of the business operation of the target
company and liquidity of the issue. However, investment in depositary
receipts, and investment trust beneficiary certificates may be made in cases
where there are reasonable grounds such as the existence of a restriction on
direct purchase of the underlying stock.
(b) Appropriate diversification in countries, currencies, industries andsecurities shall be sought in accordance with the investment method.
Investment in equities issued by the same company shall be no more than
5% of total equities outstanding of the company for each external asset
manager.
(v) Alternative Assets
Notwithstanding the provisions of (i) through (iv), following matters shall becomplied with for alternative assets.
(a) Investable assets are securities that mostly invest in alternative assets(limited to those with limited liability; hereinafter in (v) the same applies).
(b) Upon investment, sufficient research and analysis shall be carried out withregard to the legal, tax and accounting rules applied to securities, as well as
the eligibility, profitability, usage of procured funds and appropriateness of
information disclosure of securities.
(c) External audit by an auditor shall be conducted for each accounting period(within two years for the first and last accounting periods, and within a year
for other accounting periods), with their reports (hereinafter in (v) referred8to as the “Audit Report”) promptly provided upon completion. In cases where
the Audit Report has already been completed, an unqualified, qualified orequivalent opinion shall be expressed in the latest Audit Report.
(d) Appropriate measures shall be taken in cases where the Audit Report hasceased to be provided or an unqualified, qualified or equivalent opinion has
ceased to be expressed in the latest Audit Report.
(vi) Short-Term Assets
Investable assets are treasury discount bills, U.S. treasury bills, deposits,
short-term corporate bonds (i.e., electronic CP), commercial paper, negotiable
deposits, call loans, bills traded on discount markets, beneficiary rights fornon-discretionary money trusts, lending to general accounts of life insurancecompanies, short-term loans against the States (including its special account),
short-term loans guaranteed by the States, and money market funds(including repurchase agreements).

(2) Investment Guidelines Applied to All Assets.
External asset managers shall comply with the following requirements common
to all assets.
(i) Prohibited Transactions(a) External asset managers shall not participate in pump-and-dump or
cornering and also shall not make investments to control investee
companies.
(b) External asset managers shall not deal with margin trading such as buying
on margin and short selling.
(c) External asset managers shall avoid situations where frequent transactionsof securities would increase the transaction costs and decrease theinvestment return net of the costs.
(ii) Guidelines of Derivatives Transactions(a) Purposes
Derivatives transactions shall be limited to preventing or alleviating therisk of price fluctuations of the underlying assets, preventing or alleviating
the risk of exchange rate fluctuations in investments in foreign currency-

9

denominated assets and temporary substitution for the disposal of theunderlying assets (referred to as “short hedge” in (b)), or to temporary
substitution for the purchase of the underlying assets (referred to as “longhedge” in (b)), and shall not be for speculative purposes, provided, however,that this does not apply to cases where it is set forth otherwise in theindividual investment guidelines provided by GPIF.
(b) Notional Amounts
In the case of short hedges, the notional amounts of derivatives shall bewithin the scope of the underlying assets that are currently held or set to beheld, while in the case of long hedges, the notional amounts of derivatives
shall be within the scope of cash and its equivalent that are currently heldor set to be held. However, if it is set forth otherwise in accordance with theproviso of (a) above, the notional amounts shall be within the scope thereof.
(iii) Japan’s Stewardship Code, etc.
External asset managers that adopt Japan’s Stewardship Code shall engage
in initiatives based on their individual stewardship policy. External asset
managers that do not adopt Japan’s Stewardship Code shall explain thereason to GPIF.
External asset managers, that are PRI signatories shall report that fact to
GPIF, while non-PRI signatories shall explain why they are not signatories
to GPIF.
(iv) Guidelines for Exercise of Shareholder Voting Rights(a) Basic Concept for Exercise of Shareholder Voting Rights
External asset managers shall recognize the importance of ESG(Environmental, Social, and Governance) issues, establish their proxy voting
policy with the knowledge that the purpose of exercising voting rights is tomaximize shareholders’ long-term interests, and appropriately exercise
voting rights based on this policy.
(b) Understanding External Asset Managers’ Policies on Exercise of
Shareholder Voting Rights and the Status of Exercise
External asset managers shall submit their policies concerning the exerciseof shareholder voting rights to GPIF. Said policies must also set out how to
respond to cases of antisocial behavior at the company.
Furthermore, external asset managers shall report the status of exercise of10

shareholder voting rights to GPIF every fiscal year.
(v) Guidelines of Trade Executions(a) The transactions of securities shall be executed to minimize the totaltransaction costs, taking the best way of execution into consideration.
(b) When trading securities, the following matters shall be registered withGPIF beforehand:・Policies and systems for placing purchase or sale orders
・Principles for selecting and evaluating securities brokers
・Principles for placing purchase or sale orders
・Policies for transaction with a securities broker that is a parent company,
subsidiaries or affiliates of the external

asset managers(c) When trading securities, the most advantageous terms shall be selected
upon choosing securities brokers and transaction methods.
(d) Prohibition of Soft Dollar
External asset managers shall not execute securities transactions involving
soft dollar whereby the costs of various research and information provisionpertaining to the transactions are commingled in the commissions.
(vi) Guidelines of Risk Management and Compliance
External asset managers shall strive to develop internal control systems to
examine risk and comply with laws, regulations and investment guidelines.
(3) Requirements for Trust and Custody Services
External asset managers shall comply with the following requirements withregard to trust and custody services.
(i) In cases where external asset managers are also delegated with trust andcustody services, they shall manage the entrusted assets by clearly
distinguishing them from its own assets, and pay careful attention to thecustody of securities holdings and the settlement operations of funds. They
shall also pay careful attention to credit risk, operational expertise and costs
when selecting another custodian.
(ii) In cases where assets must be sold for the changes in asset allocation or
investment guidelines by GPIF, or for the termination of the contracts,
external asset managers shall pay careful attention to the market impact and11transaction costs, and do their utmost to avoid losses for GPIF.
(4) Reporting
External asset managers shall comply with the following reporting
requirements.
(i) External asset managers shall report to GPIF on the results of management
and investment of funds as of the end of each month.
(ii) In the event of violation of any laws, regulations, contracts or investment
guidelines, external asset managers shall immediately report to GPIF andfollow the instructions thereof.
3. Management Fees
With regard to fees paid to external asset managers, the fee level shall be efficientand reasonable according to the investment methods.
IV. Trust and Custody Services Providers
1. Basic Matters
GPIF shall request trust and custody services providers (i.e., trust companies thatprovide trust and custody services, and lend bonds or foreign equities undermanagement upon instructions from GPIF or from external asset managers; thesame applies hereinafter) to make reports concerning the administration of funds(including the lending of bonds or foreign equities under management; the same
applies hereinafter) or request the submission of necessary materials as needed,hold regular meetings with each provider concerning the administration, and givenecessary instructions to the providers based on their reports.
2. Trust and Custody Services Guidelines
When entrusting the trust and custody services of funds to providers, GPIF shallpresent the guidelines of objectives and other matters described below to providers
and monitor their compliance and provide necessary instructions to the providers.
Also, when entrusting temporary foreign cash management related trust andcustody services during portfolio rebalances, GPIF shall set forth fundmanagement guidelines and provide necessary instructions to providers based on a
separately concluded trustee agreement.

12(1) Communication with External Asset Managers
Trust and custody services providers shall strive to closely communicate withGPIF or external asset managers that provide investment instructions on theentrusted assets and shall operate to be able to accurately and promptly provide
relevant information requested from GPIF or from external asset managers.
(2) Requirements for Trust and Custody Services
Trust and custody services providers shall administer the entrusted assets byclearly distinguishing them from their own assets, pay careful attention to thecustody of securities holdings and the settlement operations of funds. They shallalso pay careful attention to credit risk, operational expertise and costs whenselecting another custody services provider.
(3) Reporting
Trust and custody services providers shall comply with the following
requirements concerning reporting.
(i) Trust and custody services providers shall report to GPIF on the results ofadministration of funds.
(ii) In the event of violation of any law, regulation, contracts or trust and custody
services guidelines, trust and custody services providers shall immediately
report to GPIF and follow the instructions thereof.
3. Trust and Custody Services Fees
With regard to fees paid to trust and custody services, the fee level shall beefficient and reasonable according to the investment methods.
IV-2. Transition Managers
1. Basic Matters
Notwithstanding the provisions of section III, GPIF shall request transition
managers (i.e., trust companies or financial instruments business operators that
conduct transition management operations; the same applies hereinafter) to makereports or request the submission of necessary materials on the management and13

investment of funds (the investment in the case of financial instruments business
operators; the same applies in items 1 and 2(3)(i)) as needed, hold regularmeetings with each transition manager on the management and investment, andprovide necessary instructions to the transition managers based on their reports.
2. Transition Management Guidelines
When entrusting transition management operations, GPIF shall provide transition
management guidelines to transition managers on matters described below andmonitor the compliance of the guidelines and provide necessary instructions to thetransition managers.
(1)

Transition Management Operation Guidelines

Transition managers shall comply with the following requirements.
(i) Prohibited Transactions(a) Transition managers shall not participate in pump-and-dump or corneringand also shall not make investments to control investee companies.
(b) Transition managers shall not deal with margin trading such as buying on
margin and short selling.
(c) Transition managers shall avoid situations where frequent transactions of
securities would increase the transaction costs and decrease the investment
return net of the costs.
(ii) Guidelines of Derivatives Transactions(a) Purposes
Derivatives transactions shall be limited to preventing or alleviating therisk of price fluctuations of the underlying assets, preventing or alleviating
the risk of exchange rate fluctuations in investments in foreign currencydenominated assets and temporary substitution for the disposal of theunderlying assets (referred to as “short hedge” in (b)), or to temporary
substitution for the purchase of the underlying assets (referred to as “longhedge” in (b)), and shall not be for speculative purposes, provided, however,that this does not apply to cases where it is set forth otherwise in theindividual transition management guidelines provided by GPIF.
(b) Notional amounts
In the case of a short hedges, the notional amounts of the derivative shall bewithin the scope of the underlying assets that are currently held or set to beheld, while in the case of a long hedges, the notional amounts of the14derivative shall be within the scope of cash and its equivalent that are
currently held or set to be held.
(iii) Guidelines for Exercise of Shareholder Voting Rights(a) Basic Concept for Exercise of Shareholder Voting Rights
Transition managers shall recognize the importance of ESG issues, establish
their proxy voting policy with the understanding that the purpose of
exercising voting rights is to maximize shareholders’ long-term interests,
and appropriately exercise voting rights based on this policy.
(b) Understanding Transitions Managers’ Policies on Exercise of Shareholder
Voting Rights and the Status of Exercise
Transition managers shall submit their policies concerning the exercise ofshareholder voting rights to GPIF. Said policies must also set out how to
respond to cases of antisocial behavior at the company.
Furthermore, transition managers shall report the status of exercise ofshareholder voting rights to GPIF every fiscal year.
(iv) Guidelines of Trade Executions(a) The transactions of securities shall be executed to minimize the totaltransaction costs, taking the best way of execution into consideration.
(b) When trading securities, the following matters shall be registered withGPIF beforehand:・Policies and systems for placing purchase or sale orders
・Principles for selecting and evaluating securities brokers
・Principles for placing purchase or sale orders
・Policies for transaction with a securities broker that is a parent company,
subsidiaries or affiliates of the transition managers(c) When trading securities, the most advantageous terms shall be selected
upon choosing securities brokers and transaction methods.
(d) Prohibition of Soft Dollar
Transition managers shall not execute securities transactions involving soft
dollar whereby the costs of various research and information provisionpertaining to the transactions are commingled in the commissions.
(v) Guidelines of Risk Management and ComplianceTransition managers shall strive to develop internal control systems to15

examine risk and comply with laws, regulations and transition management
guidelines.
(2) Requirements for Trust and Custody Services
Transition managers shall comply with the following requirements with regard
to trust and custody services.
(i) In cases where transition managers are also delegated with trust and custody
services, they shall manage the entrusted assets by clearly distinguishingthem from its own assets, and pay careful attention to the custody of securities
holdings and the settlement operations of funds. They also shall pay carefulattention to credit risk, operational expertise and costs when selecting anothercustody services provider.
(ii) In cases where assets must be sold for the changes in asset allocation or
investment guidelines by GPIF, or for the termination of the contracts,
external asset managers shall pay careful attention to the market impact andtransaction costs, and do their utmost to avoid losses for GPIF.
(3) Reporting
Transition managers shall comply with the following reporting requirements.
(i) Transition managers shall report to GPIF on the results of management andinvestment of funds.
(ii) In the event of violation of any laws, regulations, contracts or transition
management guidelines, transition managers shall immediately report to
GPIF and follow the instructions thereof.

3. Transition Management Fees
With regard to fees paid to transition managers, the fee level shall be efficient andreasonable according to the investment methods.
V. Selection and Evaluation of External Asset Managers
1. External Asset Managers(1) Criteria and Methods of Selection and Review of the Structure of External

16

Asset Managers
When selecting external asset managers, GPIF shall observe the resolutions of
the Board of Governors concerning important matters and comply with thefollowing criteria and methods.
(i) Criteria for Selection
The minimum requirements shall be as follows:(a) External asset managers must have registration for Investment
Management Business under “Financial Instrument and Exchange Act (Anc
No.25 of 1948), etc. to be entrusted with the management and investment of
the pension reserve fund.
(b) The group (i.e., the company that submits consolidated financial
statements, its subsidiaries and affiliates) that an external asset manager
belongs to must have sufficient experiences in managing clients’ assets.
(c) External asset managers must not engage in any significantly
inappropriate incidents regarding asset management operations within thelast three years.
(d) External asset managers that provide trust and custody services in
addition to the asset management must have credit ratings (long-term
ratings on issuers based on their requests) of BBB- or higher from no lessthan two Rating Agencies and must not have a credit rating of BB- or lower
from any of the Rating Agencies.
(ii) Methods of Selection(a) Except in special circumstances, solicitations to external asset managers
shall be made publicly.
(b) In principle, public solicitations shall be made without any deadlines forapplications (hereinafter referred to as the “Manager Registration System”).
(c) External asset managers shall be selected by taking into consideration the
results of comprehensive evaluation including the evaluation ofmanagement fees and the manager structure.
(iii) Review of Manager StructureManager structure may be reviewed as needed for each investment asset andstyle, based on periodic examinations of the manager structure, the status ofapplication with the Manager Registration System and the comprehensive
evaluation of existing external asset managers.

17

(2) Criteria for Allocation
GPIF shall allocate its funds to external asset managers that manage traditional
assets and adopt investment styles to be funded, and meet a certain level incomprehensive evaluation. GPIF shall commit its funds to external asset
managers that manage alternative assets and meet a certain level incomprehensive evaluation.
(3) Criteria and Methods of Withdrawal and Termination
When GPIF withdraws funds from traditional assets or terminates contracts
with external asset managers, GPIF shall follow the criteria and methods set
forth below. The same applies to criteria for withdrawal of commitment(including the deletion of all or part of unused commitment; the same applies
hereinafter) and termination of contracts of alternative assets, but methods may
be decided on a case-by-case bases by taking into account the efficiency ininvestment.
(i) Criteria for Withdrawal and Termination(a) When an external asset manager ceases to satisfy the criteria for selection
The contract with an external asset manager shall be terminated when theexternal asset manager ceases to meet the requirements of sub-item (1)(i). If
a trust company is downgrade to BB- or lower from any of the Rating
Agencies but takes necessary measures to preserve the assets of GPIF, thecontract with the trust company need not be terminated immediately.
(b) When a comprehensive evaluation falls below a certain level
When the comprehensive evaluation of an external asset manager falls
below a certain level, GPIF shall issue a warning to the external asset
manager, and the withdrawal of funds or commitments that GPIF allocates(hereinafter referred to as “withdrawal”) shall be carried out in principle.
Furthermore, the contract may be terminated if the comprehensive
evaluation is significantly low.
(c) When a problem arises in relation to investment expertise due to changes
in its organization or other issues.
When a problem arises in relation to the investment expertise of an external
asset manager due to changes in its organization or other issues, GPIF shallissue a warning to the external asset manager and withdraw funds

18

entrusted to the external asset manager, or terminate the contract with theexternal asset manager. However, the warning shall not be required if
necessary.
(d) When an investment guideline is violated.
When an external asset manager violates an investment guideline provided
by GPIF (excluding minor violations), GPIF shall issue a warning to theexternal asset manager and withdraw funds entrusted to the external asset
manager, or terminate the contract with the external asset manager.
However, the warning shall not be required if necessary.
(e) When withdrawal or termination is necessary for the management andinvestment of assets
GPIF may withdraw funds entrusted to an external asset manager or
terminate the contract with an external asset manager when it is necessary
for the management and investment of assets.
(ii) Method of Withdrawal of Funds
When GPIF withdraw funds entrusted to an external asset manager or
terminate the contract with an external asset manager in accordance with theprovision of (i), the withdrawal or the termination shall be carried out inprinciple by transferring the assets.
(iii) Monitoring of External Asset Managers to Whom GPIF Issues Warning
To the external asset managers to whom GPIF issues warning, GPIF shallrequire to submit a remediation plan, and continue monitoring for a certain
period of time.
In case the improvement cannot be expected, GPIF may terminate thecontract.
(4) Suspension of Allocation
When GPIF suspends the allocation of funds to an external asset manager, GPIF
shall follow the criteria set forth below.
(i) When a Criterion for Withdrawal or Termination is Expected to be Applied
When a criterion for withdrawal or termination defined in sub-items (3)(i)(a),(c) or (d) is expected for an external asset manager, GPIF shall request areport to the external asset manager or investigate the situation, and suspend
the allocation of funds to the external asset manager until GPIF confirms that19

the criterion for withdrawal or termination is not applied.
(ii) When Suspension is Expected to be Necessary for the Management andInvestment of Assets
GPIF may suspend the allocation of funds to an external asset manager when
GPIF expects the suspension to be necessary for the management andinvestment of assets.
(5) In Case of Merger or Acquisition
When an external asset manager is merged with or acquired by another, GPIF
may withdraw funds from, terminate the contract with or allocate funds to theexternal asset manager based on the evaluation of the investment expertise andthe changes in the organization.
2. Trust and Custody Services Providers(1) Criteria and Methods of Selection
When selecting trust and custody services providers, GPIF shall observe theresolutions of the Board of Governors concerning important matters and comply
with the following criteria and methods.
(i) Criteria for Selection
The minimum requirements shall be as follows:(a) Trust and custody services providers must obtain the necessary license to
be entrusted with trust and custody services of the pension reserve fund.
(b) Assets under management in the entire group (i.e., the company that
submits consolidated financial statements, its subsidiaries and affiliates)
must be large enough.
(c) Trust and custody services providers must not engaged in any significantly
inappropriate act regarding trust and custody services operations within thelast three years.
(d) Trust and custody services providers must have credit ratings (long-term
ratings on issuers based on their requests) of BBB- or higher from no lessthan two Rating Agencies and must not have a credit rating of BB- or lower
from any of the Rating Agencies.
(ii) Method of Selection

20

(a) Except in special circumstances, solicitations to trust and custody services
providers shall be made publicly.
(b) Trust and custody services providers shall be selected by taking into
consideration the results of comprehensive evaluation including trust andcustody services fees in Japan, and custody services fees abroad.
(2) Criteria and Methods of Withdrawal and Termination
When GPIF withdraws funds from entrusted assets or terminate contracts withtrust and custody services providers, GPIF shall follow the criteria and methods
set forth below.
(i)

Criteria for Withdrawal and Termination(a) When a trust and custody services provider ceases to satisfy the criteria for
selection
The contract with a trust and custody services provider shall be terminatedwhen the trust and custody services provider ceases to meet therequirements of sub-item (1)(i).
(b) When a trust and custody services provider is reviewed based oncomprehensive evaluation
When a trust and custody services provider is determined not to be able tobe entrusted after the comprehensive evaluation, the contract with the trustand custody services provider shall be terminated.
(c) When a problem arises in relation to trust and custody services expertisedue to changes in its organization or other issues
When a problem arises in relation to trust and custody services expertisedue to changes in its organization or other issues, GPIF shall issue awarning to the trust and custody services provider and withdraw funds
entrusted to the trust and the custody services provider, or terminate thecontract with the trust and custody services provider. However, the warning
shall not be required if necessary.
(d) When a trust and custody services guideline is violated
When a trust and custody services provider violates a trust and custody
services guideline provided by GPIF (excluding minor violations), GPIF
shall issue a warning to the trust and custody services provider andwithdraw funds entrusted to the trust and custody services provider, or
terminate the contract with the trust and custody services provider.
However, the warning shall not be required if necessary.

21

(e) When withdrawal or termination is necessary for the management andinvestment of assets
GPIF may withdraw funds entrusted to a trust and custody services
provider or terminated the contract with a trust and custody services
provider when it is necessary for the management and investment of assets.
(ii) Methods of Withdrawal of Funds
When GPIF withdraws funds entrusted to a trust and custody services
provider or terminate the contract with a trust and custody services provider
in accordance with the provision of (i), the withdrawal or the termination shallbe carried out in principle by transferring the assets.
(3) In Case of Merger or Acquisition
When a trust and custody services provider is merged with or acquired byanother, GPIF may withdraw funds from, terminate the contract with or allocate
funds to the trust and custody services provider based on the evaluation of thetrust and custody services expertise and the changes in the organization.
3. Transition Managers(1) Criteria and Methods of Selection
Notwithstanding the provisions of item 1(1), when selecting transition
managers, GPIF shall observe the resolutions of the Board of Governors
concerning important matters and comply with the following criteria andmethods.
(i)

Criteria for Selection
The minimum requirements shall be as follows:(a) Transition managers must obtain the necessary license to be entrustedwith the transition management.
(b) Transition managers must not engage in any significantly inappropriate
act regarding transition management operations within the last three years.
(c) Transition managers that provide trust and custody services in addition to
the transition management must have credit ratings (long-term ratings on
issuer based on their requests) of BBB- or higher from no less than two
Rating Agencies and must not have a credit rating of BB- or lower from anyof the Rating Agencies.

22

(ii) Methods of Selection(a) Except in special circumstances, solicitations to transition managers shallbe made publicly.
(b) Transition managers shall be selected by taking into consideration the
results of comprehensive evaluation including the evaluation of transition
management fees and shall be expected to execute the transition
management properly.
(2) Criteria for Termination
Notwithstanding the provisions of item 1(3), GPIF shall terminate contracts
with transition managers by the criteria set forth below.
(a) When a transition manager ceases to satisfy the criteria for selection
The contract with a transition manager shall be terminated when thetransition manager ceases to meet the requirements of sub-item (1)(i).
However, if it is downgraded to BB- or lower from any of the Rating Agencies
but it takes necessary measures to preserve the assets of GPIF, the contract
need not be terminated immediately.
(b) When a transition manager is reviewed based on comprehensive evaluation
When a transition manager is determined not to be able to be entrusted after
the comprehensive evaluation, the contract with the transition manager shallbe terminated.
(c) When a problem arises in relation to transition management expertise due tochanges in its organization or other issues
When a problem arises in relation to transition management expertise due tochanges in its organization or other issues, GPIF shall issue a warning to thetransition manager and terminate the contract with the transition manager.
However, the warning shall not be required if necessary.
(d) When a transition management guideline is violated
When a transition manager violates a transition management guideline
provided by GPIF (excluding minor violations), GPIF shall issue a warning
shall to the transition manager and terminate the contract with the transition
manager. However, the warning shall not be required if necessary.
(e) When termination is necessary for the management and investment of assets
GPIF may terminate the contract with a transition manager when it isnecessary for the management and investment of assets.

23

4. Comprehensive Evaluation Methods(1)

External Asset Managers

GPIF shall set out its comprehensive evaluation standards with regards to thefollowing issues for its decision making of selecting a new external asset
manager, as well as increasing fund allocation to, partially withdrawing from,and terminating an existing external asset manager. . In selecting a new
external asset manager, if the investment style of the manager is the same as
the existing ones, a comparative evaluation among such external asset managers
shall be carried out.
To determine whether to partially withdraw from, terminate fully, or increase
allocation to an existing investment manager, a comprehensive evaluation shallbe carried out at least once every fiscal year (or as many times as needed, if
necessary).
・ Investment Policy
Whether the investment policy is consistent with that of GPIF and clearly
articulated.
・ Investment Process (Including ESG integration)
Whether an investment process is constructed in accordance with theinvestment policy.
Whether the method of pursuing added value is reasonable, whether it shows
feasible performances and reasonable tracking record, and whether the
method is valid. In case of a passive external asset manager, the method of
pursuing added value means its method of tracking the manager benchmark
while paying due consideration to securing revenues by minimizing the totaltransaction cost. In case of an active external asset manager, it means its
method of pursuing excess return over the manager benchmark.
Whether investment risk is recognized objectively.
Whether risk management such as understanding the degree of deviation fromthe given manager benchmark is appropriately carried out in accordance withthe profile of the asset.
Whether ESG integration is implemented in a suitable way for the fundcharacteristics (GPIF defines ESG integration as “the explicit and systematic
inclusion of ESG factors into investment analysis and investment decisions”).
・ Organization and Human Resources
Whether the investment policy is thoroughly enforced within the organization.
Whether the flow of decision-making and responsibilities have been made24

clear.
Whether the experienced staff, whose track record indicates to takeappropriate measures to different environments in investing, are sufficiently
assigned.
Whether the staff are motivated by remuneration that is aligned withinvestment performance.
Whether the risk management system has been established.
Whether the governance system as an asset management company and thesystem for preventing conflicts of interest have been established.
・ Internal Control
Whether the internal control system for compliance with laws and regulations
has been established. In addition, whether the internal inspection andexternal audit systems have been developed.
・ Stewardship Initiatives
For equity asset managers, GPIF will examine the following:
Whether the asset manager encourages corporate value creation andsustainable growth of investee companies through constructive engagement
and other activities based on the GPIF’s Policy to Fulfill StewardshipResponsibilities, in addition to other initiatives for realizing shareholder
return such as establishing an organizational framework for managing
conflicts of interest.
Whether the asset manager recognizes the importance of ESG, and has
established proxy voting guidelines and exercises voting rights appropriately
based on the understanding that the purpose of doing so is to maximize longterm shareholder return.
Whether the asset manager, over the course of engagement activities, asks
investee companies to explain how they address ESG (Environmental, Socialand Governance) issues and whether the asset manager proactively conducts
ESG-related activities to enhance long-term investment return throughencouraging corporate value creation and sustainable growth.
・ Administrative System
Whether a system to report investment performance has been fully developed.
・ Information Security Measures
Whether a system to appropriately implement information security measures
has been established.
・ Information Provision25

Whether an external asset manager provides GPIF with useful information on
the investment environment and investment methods or the manager can be
expected to do so.
・ Management Fees
Whether the level of management fees is reasonable from a perspective ofcontinuous provision of high-quality service.
(2) Trust and Custody Services Providers
GPIF shall conduct comprehensive evaluation as follows and apply the results tothe criteria for the selection of trust and custody services providers and for thetermination of the contract. The comprehensive evaluation for the criteria for theselection includes trust and custody services fees in Japan and custody feesabroad.
・ Organization and Human Resources
Whether the business policy is clear, the capital is sufficiently invested in trustand custody services operations and the organization can provide the trust andcustody services in large scale.
Whether the human resource management enables staff to have expertise intrust and custody services operations and allocates those staff to relevant
departments.
・ Operating System
Whether the efficient operating system has been established and operation isconducted promptly and securely.
・ Internal Control
Whether the internal control system for compliance with laws and regulations
has been established. In addition, whether the internal inspection andexternal audit systems have been developed.
・ Trust and Custody Services System
Whether the system is sufficient to carry out trust and custody services
operations. Furthermore, whether the capital expenditure is sufficient tomaintain and improve the system.
・ Global Custody Services
Whether the global custody services provider is selected reasonably andappropriately managed on an ongoing basis. Whether the capabilities of
securities delivery, funds settlement and information provision are sufficient.
・ Information Provision26

Whether the various information can be provided efficiently. Whether theorganization ensures the information provision.
・ Information Security Measures
Whether the system to appropriately implement information security
measures has been established.
(3) Transition Managers
Notwithstanding the provisions of sub-item (1), GPIF shall conduct
comprehensive evaluation as follows and apply the results to the criteria for theselection of transition managers and for the termination of the contract, basedon the transition managers’ performance including transaction costs. The
comprehensive evaluation for the criteria for the selection includes theevaluation of transition management fees.
・ Trade Execution Expertise
Whether the transition manager has the expertise to build targeted portfolio
through the appropriate execution of transactions based on the analysis of theportfolio and environments in investing, while controlling total transaction
costs.
・ Organization and Human Resources
Whether the flow of decision-making and responsibilities have been madeclear. Whether the experienced staff are sufficiently assigned. Whether therisk management system has been established.
・ Internal Control
Whether the internal control system for compliance with laws and regulations
has been established. In addition, whether the internal inspection andexternal audit systems have been developed.
・ Proxy Voting Initiatives
GPIF will examine whether transition managers for domestic and foreign
equities recognize the importance of ESG and have established proxy voting
guidelines and exercise voting rights appropriately based on theunderstanding that the purpose of doing so is to maximize long-term
shareholder return.
・ Administrative System
Whether the system to report the implementation status of transition
management has been fully developed.
・ Information Security Measures27

Whether the system to appropriately implement information security
measures has been established.
VI. In-house Investment
1. The Roles of In-house Investment
In order to contribute to the efficient investment of the pension reserve fund, GPIF
shall manage and invest part of the pension reserve fund by itself, while utilizing
trust and custody services providers, in some of the investable assets by theinvestment method described in Article 21, paragraph 1, Item 3(a) and (b) of the
Individual Act. In managing and investing internally, GPIF shall thrive to do it
efficiently and shall assume the following roles to secure necessary liquidity andcarry out efficient cash management.
(1) Management and investment of funds of domestic bonds(2) Management and investment of inflation-linked government bonds(3) Management and investment of foreign currency-denominated unit trust(4) Investment in Limited Partnership Structures(5) Management and investment of foreign bond futures(6) Management and investment of stock index futures(7) Preservation of the necessary liquidity for the redemption of entrusted funds
and efficient management of cash
(8) Preservation of the necessary liquidity for investment in alternative assets andefficient management of cash(9) Management and investment of foreign exchange forwards ((5) or (6) only)
2. Basic Investment Policy
GPIF shall carry out in-house investment by launching the following funds to28

fulfill the roles set forth in item 1.
(1) Funds of Domestic Bonds
Investing into domestic bonds, these funds shall be managed in appropriate
ways in order to contribute to the efficient investment of the pension reserve
fund.
Some of the domestic bond holdings could be applied for lending.
(2) Fund of Inflation-Linked Government Bonds
Besides the funds defined in (1), this fund shall be managed and invested ininflation-linked government bonds in order to mitigate inflation risk.
(3) Fund of Foreign Currency-Denominated Unit Trusts
The fund shall be managed and invested in foreign currency-denominatedinvestment trusts in order to invest in alternative assets.
(4) Fund of Limited Partnership Structures
The fund shall invest in Limited Partnership Structures which invest inalternative assets.
(5) Fund of Foreign Bond Futures
The fund shall be managed and invested in foreign bond futures to avoid losses
from bond prices fluctuations.
(6) Fund of Stock Index Futures
The fund shall be managed and invested in stock index futures as a temporary
substitute for the acquisition or disposal of underlying assets held in domestic or
foreign stocks to avoid losses from stock prices fluctuations.
(7) Fund of Japanese Yen-Denominated Short-Term Assets
The fund shall be safely and efficiently managed and invested in Japanese Yendenominated short-term assets in order to secure the necessary liquidity for theredemption of entrusted funds.
Notwithstanding the provisions of item 4, the fund may be invested in couponbearing government bonds (those with the maturity of less than a year).
(8) Fund of Foreign Currency-Denominated Short-Term Assets

29

The fund shall be safely and efficiently managed and invested in foreign
currency-denominated short-term assets in order to secure the necessary
liquidity for investing in alternative assets.
3. Criteria for the Selection of Counterparties
When selecting securities firms as counterparties of securities and derivatives
transactions, when selecting banks and foreign exchange brokers as counterpartiesof foreign exchange transactions, when selecting banks, securities firms and money
market brokers as counterparties of short-term assets investment, and whenselecting trust companies as counterparties of bonds lending (referred to as the“Counterparties” hereinafter in item 3) for in-house investment, GPIF shall follow
the criteria and methods set forth below.
(1) Selection of Counterparties(i) Minimum Requirements(a) The counterparty must obtain the necessary business license to trade withGPIF.
(b) The counterparty must have made sufficient transactions in capital
markets.
(c) The counterparty must not engage in any significantly inappropriate act
within the last three years.
(d) Counterparties of short-term assets investment or bonds lending musthave credit ratings (long-term ratings on issuer based on their requests) of
BBB- or higher from no less than two Rating Agencies and must not have acredit rating of BB- or lower from any of the Rating Agencies.
(ii) Selection of Counterparties
Counterparties shall be selected by taking comprehensive evaluation into
consideration.
(2) Evaluation of Counterparties
GPIF shall periodically conduct comprehensive evaluation of Counterparties
with regard to their expertise of trade executions and operations and shalldecide to continue to trade with them.
4. Investment Guidelines

30

The investment guidelines for the in-house investment shall be based on theprovisions of section III, item 2 and section IV, item 2 mutatis mutandis taking
into account the roles and the characteristics of the in-house investment, provided,
however, the investment guidelines for the funds of foreign currency-denominatedinvestment trusts and funds of Limited Partnership Structure, investment
guidelines shall be stipulated in a different bylaw.
5. Evaluation of In-house Investment
When evaluating in-house investment, GPIF shall conduct comprehensive
evaluation that takes into account the roles and the characteristics of the in-house
investment including performance comparison to manager benchmarks and toexternal asset managers.
VII. Short-Term Borrowing
1. Short-Term Borrowing
GPIF may undertake short-term borrowing as needed in order to respond to atemporary shortage of funds caused by unforeseen reasons.
2. Criteria for Selection of Counterparties
When selecting counterparties of short-term borrowing, GPIF shall follow the criteria
and method set forth below.
(1) Criteria of Counterparties(i) Minimum Requirements(a) The counterparty must obtain the necessary business license to lend funds
to GPIF.
(b) The counterparty must provide GPIF credit line that is large enough.
(c) The counterparty must not engaged in any significantly inappropriate act
within the last three years.
(ii) Selection of Counterparties
Counterparties shall be selected by taking into consideration comprehensive
evaluation.
(2) Evaluation of Counterparties
GPIF shall periodically conduct comprehensive evaluation of Counterparties

31

with regard to their lending capabilities and shall decide to continue to borrowfrom them.
VIII. Other Important Matters Concerning Management and Investment Operations
1. Self-Evaluation and Record-Keeping of Management and Investment(1) GPIF shall base its operations of management and investment of the pension
reserve fund on sufficient research and analysis, and shall evaluate theoperations each fiscal year.
(2) GPIF shall thrive to keep appropriate records supporting sub-item (1) for
sufficiently long period.
2. Others
In addition to revisions made due to changes in the Medium-Term Plan or theManagement Policy, this Operation Policy shall be reviewed and revised as needed
in a timely and proper manner in light of drastic changes in the economic
environment.
Supplementary Provision (Effective Date: July 21, 2020)(Effective Date)
This amendment shall come into effect as of July 21, 2020, and shall apply from
April 1, 2020.
Supplementary Provision (Effective Date: December 12, 2023)
This amendment shall come into effect as of December 20, 2023.

32

(Exhibit 1) Evaluation Benchmarks for Investable Assets in the Policy Asset Mix
・ Domestic bonds: NOMURA-BPI (excluding ABS)・ Domestic equities: TOPIX (incl. dividends)
・ Foreign bonds: FTSE World Government Bond Index(not incl. JPY,CNY, no
hedge/JPY basis)
・ Foreign equities: MSCI ACWI (not incl. JPY, JPY basis, incl. dividends, after
taking into account GPIF dividend tax factors)(Exhibit 2) Rating agencies
1

Rating and Investment Information, Inc.

2

Japan Credit Rating Agency, Ltd.

3Standard & Poor’s Ratings Services

4

Fitch Ratings Ltd.

5

Moody’s Investors Service, Inc.
(In order of the Japanese syllabary)33