AI will transform the way Japan’s ¥158 trillion ($1.4 trillion) Government Pension Investment Fund (GPIF) to select and monitor its asset managers.
The world’s biggest pension fund, which outsources all its investment management, announced plans last year to use AI to better scrutinise its poorly performing active managers. Since then, AI specialists Sony Computer Science Laboratories and GPIF have developed a proof-of-concept prototype that uses deep learning to study manager styles and strategies.
The latest progress report on the project promises a big shakeup in what GPIF considers one of its most important tasks.
The pension fund has felt it hasn’t got its money’s worth from active management for a while. About 20 per cent of its portfolio is in active strategies yet adding alpha net of fees has proved almost impossible. GPIF’s 2016 annual report shows the 10-year active return is -0.12 per cent for domestic bonds, -0.29 per cent for domestic stocks, 0.64 per cent for foreign bonds and -0.70 per cent for foreign stocks
“Except for foreign bonds, it has not been possible to attain alpha,” the report states.
On the other hand, payments to asset managers over three cumulative years amounted to ¥9.9 billion ($88.3 million) for domestic bond managers, ¥13.7 billion for domestic equity managers, ¥12.8 billion for foreign bond mandates and ¥34.5 billion for foreign stock mandates.

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