Comment on “Public Pension Fund Management: Best Practice and International Experience”

• Date: 01 July 2015
• Published date: 01 July 2015
• DOI: http://doi.org/10.1111/aepr.12108

Comment on “Public Pension Fund

Management: Best Practice and

International Experience”

Sadayuki HORIE†

Nomura Research Institute

JEL codes: F21, G11, G23, H55, J26

Rozanov (2015) tries to answer the question of what are the important issues for

improving pension fund management? I think that important issues are related to

pension design, pension governance, investment management, and collaboration strate-

gies. Rozanov focuses on a little bit of pension design, but is mainly devoted to pension

governance and investment management. Rozanov’s investigation succeeds quite well

because his coverage of pension governance issues and investment management is well

documented and well selected from the main stream of the pension management revolu-

tion over the past 20 years.

I would like to focus on his proposals for the Japanese Government Pension Invest-

ment Fund (GPIF) because as the deputy chairman of the GPIF’s investment committee

I am responsible for designing the reform plan for the GPIF now and in the future.

Rozanov proposes two steps: first, applying the 12 principles of best practices and

investment philosophy framework summarized in Table 1 to evaluate the current state of

affairs at the GPIF, and second demonstrating a long-term vision that Japan’s reformers

can bring to GPIF. His recommendations are similar to my suggestions to the GPIF and

the Japanese government.

Rozanov recommends the Canada model for three reasons: compelling risk-adjusted,

net of cost, long-term returns on a large asset base; classic pension fund liability profiles;

and the importance of investments in domestic markets. I agree with his recommenda-

tion because of these three points.

Rozanov also shows five important characteristics of Canada model: operational

autonomy and board independence; a high degree of delegation and investment man-

agement flexibility; direct investment by internal teams in less liquid, private market

assets; the opportunity cost model and reference portfolio; and leadership in innovation.

His points are also right.

Rozanov also suggests starting first with Norway model, mainly a traditional asset

portfolio, then moving to the Yale/Australia Future Fund model, a well-diversified port-

folio with a small number of investment staff, and finally moving to the Canada model

with a well-diversified portfolio, a large number of staff and strong internal investment

capabilities. This suggestion might be right, but I would like to suggest a path that is a

†Correspondence: Sadayuki Horie, Nomura Research Institute, 7th Floor, Kitaguchi Building,

1-6-5 Marunouchi, Chiyoda-ku, Tokyo 100-0005, Japan. Email: s-horie@nri.co.jp

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doi: 10.1111/aepr.12108 Asian Economic Policy Review (2015) 10, 299–300

© 2015 Japan Center for Economic Research 299