Japan pushing for the country's $1.8Trillion Government pension investment fund to unleash capital for the domestic private market.

​Lawmakers from Japan's ruling party are pushing for the country's $1.8Trillion Government Pension Investment Fund (GPIF) to unleash capital for the domestic private market.
This would not only likely benefit Japan Private Equity and Venture Capital industries, but it would also offer sought-after diversification for the national pension fund as the country faces down a demographic time bomb.
The move is the latest in a long line of efforts to bolster the fund’s returns through alternatives exposure as Japan sits on a demographic time bomb.
The Government Pension Fund of Japan, which manages the world’s largest pool of retirement savings, currently limits its alternatives exposure to around 5%, and only a fraction of that finds its way to private markets.

However, Reuters now reports that members of Japan’s ruling party are pushing for the allocation to be increased to make more investments closer to home.
The Private Equity industry in Japan has grown significantly in recent years, buoyed by corporate governance reform, a weaker yen, and by investment capital moving away from China.
However, a large chunk of that investment comes via overseas investors. and last year, foreign investors accounted for 45% of Venture Capital deal value—the highest since 2015.
Overseas participation in Private Equity has also grown for the fourth year in a row, with US firms such as Bain Capital, The Carlyle Group, and KKR routinely competing for the nation’s biggest buyouts.
Notable deals include KKR’s $4.1 billion winning bid for Fuji Soft in February, and Bain’s $5.5 billion acquisition of Seven & i’s dining chain business.
One of the lead lawmakers in the group calling on GPIF to bolster its PE and VC exposure is Fumiaki Kobayashi, who has outlined a raft of proposals on his website.
In addition to diversifying GPIF’s alternatives exposure, he also suggested revising tax rules to incentivise more VC investment and revising the regulatory framework around LP structures to be accessible to overseas investors.

National time bomb?
There is a long way to go. As it stands, only around 1.65% of GPIF’s assets is in alternatives, which would also include hedge funds, infrastructure and real estate. The rest is evenly split between bonds and equities, with each split evenly between foreign and domestic.
For GPIF, there is a strong incentive to diversify.
Japan’s population is rapidly aging. According to government figures, the number of people age 65 and over hit a record high last year, reaching around 29.3% of the population. The OECD predicts this will reach 39% by 2060.
This has meant that, simultaneously, more people are drawing on their savings while having fewer working-age people to make new contributions. This has put pressure on GPIF to bolster its returns by increasing its exposure to riskier assets.

Story by Andrew Woodman, PitchBook’s London Bureau Chief and oversees news coverage of Europe and the Middle East.