While broad support from money managers is nice, the backing of Japan’s biggest pension fund for new investor guidelines is the reason they will succeed, according to Fidelity Worldwide Investment.
Almost 130 institutions have adopted the stewardship code, the Financial Services Agency said June 10. They are estimated to own more than $860 billion in Japanese stocks, about one-fifth of all shares.
For Hiroki Sampei, director of research at Fidelity Worldwide Investment in Tokyo, the Government Pension Investment Fund’s enthusiasm bodes well for the principles’ success. GPIF, with ¥22.1 trillion in Japanese equities, signed up for the code in May.
“It’s not about the numbers, it’s about whether the key players properly engage with companies,” Sampei said in an interview in Tokyo last Thursday. GPIF’s support “will have a big impact,” he said.
The stewardship code completed in February enlists asset managers, some of which traditionally took a hands-off investing approach, to engage more with firms and suggest ways to improve.
Because GPIF is prohibited from buying stocks directly, the principles will apply to its external managers of Japanese shares. These include Fidelity Worldwide Investment, which has signed up for the code independently.
“Fulfilling our stewardship responsibilities will contribute to the value and sustainable growth of companies and play a role in increasing our investment returns over the medium to long term,” GPIF spokesman Tomoyuki Hirao said last week. “This will benefit people covered by the pension program.”
Institutions will be hired and existing ones evaluated based partly on their adherence to the code, GPIF said. The world’s biggest pension fund, GPIF will meet with the managers to find out how they are fulfilling their duties as responsible investors.
“GPIF’s stewardship policy is really good,” Sampei said, noting that it will influence other pension managers to follow suit. “It will be one key to the code’s success.”
The stewardship guidelines and GPIF’s focus on improving accountability are both part of Abe’s efforts to make more aggressive use of Japan’s wealth to foster a sustained economic recovery. Other initiatives include tougher corporate governance standards and the creation of a stock index to direct investors toward companies with high return on equity.
Japanese companies have tended to see money provided by investors as their own, according to Sampei. Asset managers such as insurers have held shares to cement relationships with companies to which they sell products, so they have been reluctant to press firms to improve, he said.
The FSA, which created the program, published a list June 10 of 127 institutions that signed up. Goldman Sachs Group Inc. estimates that they hold about ¥88 trillion in Japanese shares. That’s about 19 percent of the market.