<\/p>\n
Japanese pension giant Government Pension Investment Fund (GPIF) has adopted a cautious approach to investing in alternatives by prioritising those with lower liquidity and using a combination of metrics to assess the performance.<\/p>\n
The pension fund began investing in non-mainstream assets about a decade ago, maintaining the allocation at 5% of assets.<\/p>\n
Instead of a standalone classification, alternatives are integrated into its equity and bond asset classes, both foreign and Japanese, based on the risk and return profile.<\/p>\n
According to Naori Honda, director of the public relations division of GPIF\u2019s planning and communication department, alternative investments can enhance returns and help stabilise public pension finances.<\/p>\n
\u201cAs a long-term investor with limited liquidity constraints, GPIF strategically maintains alternative assets with lower liquidity in its portfolio,\u201d Honda says.<\/p>\n
The fund primarily uses traditional absolute return metrics such as internal rate of return and total value to paid-into when evaluating the performance of alternatives.<\/p>\n
It has also developed a tailored metric called spread-based direct alpha for precise measurement of returns versus that of public markets. According to Honda, this is used alongside traditional metrics for new investment mandates.<\/p>\n
She says the dual focus allows GPIF to manage and evaluate alternatives from multiple perspectives, ensuring they are aligned with the pension fund\u2019s long-term strategic goals.<\/p>\n
GPIF is the world\u2019s largest pension fund, with around 260 trillion yen (US$1.76 trillion) of total assets as of June 2025.<\/p>\n
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