Japan GPIF head unlikely to serve full term amid govt spat

Takahiro Mitani, president of the Government Pension Investment Fund (GPIF)
Tomohiro Ohsumi | Bloomberg | Getty Images
Takahiro Mitani, president of the Government Pension Investment Fund (GPIF)

The head of Japan's trillion-dollar pension fund is unlikely to see out his coming term in office, two people involved in the matter said, amid a government spat over managing the fund's increasingly risky investment portfolio.

Takahiro Mitani will accept a new five-year term as head of the Government Pension Investment Fund (GPIF) starting next month, but plans to stay on only until a successor can be found, the sources said.

Private-sector managers have snubbed the world's biggest pension fund amid the controversy over reforming its governance.

"Mitani is unlikely to stay on for the full term," said one source. GPIF press officials declined to comment.

The failure by Prime Minister Shinzo Abe's government to ensure a smooth succession at the helm of GPIF highlights the difficulties in achieving the deep-seated reforms it says are needed to revive the long-moribund economy.

The government last year pressed GPIF to slash its holdings of low-yielding government bonds and double its target for stocks, as part of Abe's plan to jolt Japan out of two decades of deflation and fitful growth.

But while the shift in GPIF's 137 trillion yen ($1.1 trillion) in assets has helped drive Tokyo Stocks to a 15-year high this week, a promised overhaul of GPIF's organisation, professionalizing its management and making it more independent, has bogged down.

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Mitani, a 66-year-old former Bank of Japan board member, initially opposed the dramatic fund reallocation, officials have said. He is in less-than-robust health and only reluctantly accepted the new interim appointment, which is to be announced this month, the sources said.

"Private sector executives would have had to quit their companies ahead of the busy shareholder meeting season, so it was hard to approach them about this," the source said. "But it's completely impossible as long as the situation around reforms is so unclear."

Global investors have been closely watching who would head the fund when Mitani's term expired. Its portfolio, bigger than Mexico's annual economic output, makes it a huge market presence and a bellwether for other big Japanese institutional investors.

Acrimonious debate

Mitani's nomination comes after months of sometimes acrimonious debate between labor unions, bureaucrats and politicians failed to produce governance reforms that Abe said would ensure the GPIF's safe move into riskier assets.

Abe, who is trying to reflate the economy and whittle down the country's outsized debt, wants to spur higher returns on pension investments for the growing ranks of elderly Japanese.

But officials at the welfare ministry are concerned about putting the savings of 67 million people at risk.

Health and Welfare Minister Yasuhisa Shiozaki, who oversees the fund, has been pushing to establish a strong, independent board of directors and create a new managing organization with weaker ties to the government to make it nimbler and more professional.

"As per Japan's growth strategy, the governance reforms are supposed to be taking place together with investment reforms," Shiozaki said on Tuesday.

But officials close to Abe, together with the ministry's pension department and unions, who have traditionally exerted a lot of influence over the fund, have baulked at Shiozaki's proposals. That has stalled attempts to bolster oversight, according to sources and draft legislation seen by Reuters.

"There is no agreement as to the shape of reforms at GPIF," said Keiko Hanai, representing Japan's largest labor union, Rengo, in negotiations over GPIF. "With so many groups vying for influence, it was easier to settle on whoever is already in place and avoid another fight."