Japan's GPIF: Situations vacant

As the teething problems of several of the younger sovereign funds and state-controlled investment funds attest, it is one thing to set out a strategy and quite another to recruit and retain people who are qualified to execute it.

As a partner at Coller Capital - and a regular speaker at AVCJ events - Mizuno had a fair claim to be the highest-profile Japanese executive working outside of Japan for an international private equity firm. He is not from within the system and has cross-border credibility. Perhaps incidentally, he also has close to 8,000 people following his, mostly Japanese, Tweets.

In the past week, GPIF has given further indication of its plans. The $1.1 trillion fund will hold a seminar next month to inform potential applicants of the qualifications it is seeking. Separately, it emerged that the incoming president of GPIF will earn JPY31 million ($260,000) next year, up from JPY18.9 million, according to a director in the fund's planning section cited by Bloomberg. Mizuno is in a newly-created post so comparisons can't be made, but at JPY30 million, his salary is in line with that of the president.

GPIF won approval last year to offer higher salaries in order to recruit investment professionals rather than government officials. PE is a relatively expensive asset class - efforts to bring down fees notwithstanding - and those at director level or above with a successful GP can expect to be well compensated.

The JPY30 million package for GPIF's CIO is still far short of the $412,039 base salary and $305,810 bonus paid to the equivalent executive at the California Public Employees' Retirement System. (According to Coller's most recent private equity barometer survey, nearly half of North American LPs are boosting pay scales to attract new recruits, compared to 30% in Europe and 19% in Asia Pacific.)

However, it has been reported by Nikkei that GPIF wants to recruit about 40 executives from financial services firms - across multiple asset classes - and may be willing to better the salary enjoyed by the current president. For its part, GPIF said that revisions to pay standards took into account private sector compensation, without exceeding the president's wage (JPY31 million, not JPY18.9 million).

It will be interesting to see how this plays out. China Investment Corporation (CIC) recruited a swathe of overseas-trained private equity talent in the wake of the global financial crisis: the financial services job market was, for obvious reasons, seeing limited supply and executives were willing to write off the lower salaries against the long-term benefits of establishing networks in and around the sovereign wealth fund.

But there was a sizeable exodus in 2011 and 2012 as these contracts began to expire.
GPIF is not constrained in the same way as CIC, so it is possible that, even in the absence of a financial crisis, recruits will find a balance between relatively lower salaries and opportunities for relationship-building with which they are comfortable. But this will be of little use if the top talent subsequently gets picked off by better-paying employers.

Continuity and discipline are vital to a successful alternatives program, especially if a newly-created one where there is pressure to deploy capital rapidly in the early years.

When dealing with opaque organizations like sovereign wealth funds, it is difficult to establish a causal link between staff volatility and performance. But it is safe to say that constant changes in the personnel meeting and allocating funds to GPs (one manager told AVCJ he met with 3-4 different teams from CIC over the course of 2011-2012) and turbulence at the top (an issue at CIC and at Korea Investment Corporation, which has undergone some structural changes as well) do not help matters.

Although GPIF is likely to be relatively conservative in rolling out its alternatives program, it will still be under pressure to recruit the right people.

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• Topics
• North Asia
• People
• LPs
• Japan
• Government Pension Investment Fund (Japan)
• Appointments
• LPs