Japanese Institutions Expand Scope, Invest For The Future
Japan’s GPIF is making big moves as it expands operations and its scope of investments. Regional pension systems are already following suit
This year has been a volatile one for institutional investors leading many to take on more reactive positions. This is especially true in Japan, where investors have shifted from broadly positive on recent structural reforms to the stock market and corporate disclosures, to concerned following a significant shift in Japan’s political coalitions following the election of Sanae Takaichi to prime minister. That’s led to some short term volatility as investors think through what kind of government Takaichi will ultimately be able to pull together.
Yonsei University Professor of Finance Sam Y. Chung, the head of AIF APAC, says “alpha generation and risk management are at the top of APAC institutional asset owners’ minds. These issues are especially important for investors in Japan.” He adds that Japanese investors are focusing on how to align with their peer institutions in approach and also take into account the unique needs of the Japanese Market.
Against this backdrop, Japan’s largest investor is making big moves. Japan’s Government Investment Fund (GPIF) announced alongside its annual results for 2024 in September, that it would be investing in alternatives on its own for the first time. The fund says it will be investing in assets like data centers which fall across real estate and infrastructure. According to the statement of investments, GPIF will invest ¥50 billion ($340 million) in total, comprising ¥40 billion for an infrastructure fund and ¥10 billion for real estate.
The move into assets like data centers is significant – if relatively small compared to other investment commitments GPIF has made. A number of institutions have announced similar plans as world governments work with technology companies on things like generative AI and other types of high performance computing that require data centers to provide the compute power to run those services. Technology companies say they will need trillions of dollars to support the development of these technologies and a large part of that will go toward data center infrastructure. Data centers can fit in both real estate and infrastructure portfolios depending on how their broader portfolios are structured.
The September update comes alongside other news at GPIF. In May, GPIF announced that it would be increasing its impact investing with a renewed focus on issues like stewardship and sustainability. That announcement has reportedly already caused other pension funds in the region to update their investment plans.
GPIF has also recently updated how it benchmarks its $1.7 trillion dollar portfolio to exclude China shares. GPIF said China-A shares had until recently been part of its policy asset mix, but made up a small proportion of its investments. In the spring, GPIF and other large investors pulled back from the onshore China-A shares market as a result of increasing global trade tensions. GPIF issued a statement saying that the exclusion of China A-shares is due to concerns the pension’s investments may be hindered by potential issues including international settlement, market liquidity, restrictions on foreign investors, frequent policy changes and securities transactions suspension.
GPIF’s overall assets have grown significantly in recent years, which explains some of these moves. The pension alongside others in the region are working on modernization efforts that include expanding the types of investments they are willing to make as well as adding headcount. In a recent interview, Kazuto Uchida, the funds president said they had plans to add staff as well as the scope of their operations. “Risk management will be important,” he said.
Anytime GPIF changes its approach other pension funds in the region tend to follow. AIF APAC’s Fall Investor Forum and Investing At Scale Summit are convening in Tokyo, Japan on October 23 where delegates – including those from GPIF as well as CIOs of Japan Investment Corporation (JIC), and Pension Fund Japanese Corporation, Japan Post Bank will gather to discuss how institutional investors in the region can best position their investment portfolios for the future. Attendees will also share lessons learned from recent pension reform efforts.