[2024 Financial Forum] "Japanese Public Pension Enhances Corporate Value Through Shareholder Engagement"

Stewardship Code Principles
"Clear Policies and Transparency of Disclosure"
Investment and Stewardship Principles Also Based on This
Harmonizing Free Activities of Fund Managers
and Active Oversight by Public Pensions

Kim Hyung-kyun, Managing Director at Cha Partners Asset Management, stated that Japan's public pension fund (GPIF) has established a Stewardship Code (guidelines for institutional investors' exercise of voting rights) and actively engages in shareholder engagement activities to enhance the value of domestic Japanese companies.

On the 9th, at the '2024 Asia Financial Forum' held at the Westin Chosun Hotel in Jung-gu, Seoul, Kim said, "GPIF actively communicates with companies through the asset managers entrusted with its funds," adding, "In exercising voting rights, it aims to align the interests of company management and minority shareholders, actively accepting shareholder proposals under this direction, and is working to enhance shareholder and corporate value in the long term."

GPIF, which plays a similar role to Korea's National Pension Service, manages a total asset size of 2,000 trillion KRW, of which 25%, or 500 trillion KRW, is invested in Japanese domestic stocks. This accounts for about 6-7% of the total market capitalization of the Japanese stock market.

Accordingly, Kim emphasized that GPIF's investment direction has a significant impact on the Japanese stock market and that the Stewardship Code was introduced to enhance corporate value and achieve long-term returns. He stated, "Unlike Korea's National Pension Service, Japan's GPIF has almost no internally managed assets and entrusts most of its funds to external asset managers for investment," stressing, "The Stewardship Code is about making sure entrusted managers manage the money well to generate profits."

Kim Hyung-kyun, Executive Director of Cha Partners, is giving a lecture on the topic "The Role of Japan's Public Pension Fund (GPIF) in the Reform of Japanese Corporate Governance" at the '2024 Asia Financial Forum' held on the 9th at the Chosun Hotel in Jung-gu, Seoul. Photo by Kang Jin-hyung aymsdream@

The two principles of the Stewardship Code created by GPIF are Clear Policy and Transparent Disclosure. Institutional investors are obligated to establish clear guidelines and transparently disclose all processes when exercising voting rights to fulfill their fiduciary duty to act in the best interests of investors.

Among the five investment principles established by GPIF based on the Stewardship Code, the most important is prioritizing long-term returns. Since GPIF operates with large-scale funds collected from the Japanese public, Kim explained that to return these funds to the public, it is necessary to achieve long-term and stable returns rather than being bound by short-term performance.

Additionally, GPIF has presented five stewardship principles that entrusted asset managers must follow. First, entrusted managers must have a well-established internal governance structure and make decisions for the benefit of pension beneficiaries. They must actively engage in shareholder engagement activities and exercise voting rights transparently. Lastly, ESG (Environmental, Social, and Governance) factors must also be included in the investment process.

Under these principles, entrusted managers are relatively free to conduct shareholder engagement activities or exercise voting rights. GPIF plays a role in monitoring and overseeing these activities. Kim said, "Not only in exercising voting rights but also regarding the performance achieved by asset managers, GPIF engages in dialogue with them," adding, "How stewardship activities are conducted is an important evaluation factor in the assessment process, and if these are not properly followed, GPIF can immediately replace the asset manager."

As a result, when GPIF conducts stewardship activities such as shareholder engagement through entrusted asset managers with Japanese companies, the companies cooperate and actively carry out IR (Investor Relations) activities. Kim added, "In this structure, the value of Japanese companies rises, and consequently, the returns on investments by Japanese asset managers also increase," concluding, "GPIF operates funds with the principle that the Japanese people and economy become wealthier and grow, creating a virtuous cycle."

Kim Hyung-kyun, Executive Director of Cha Partners, is attending the '2024 Asia Financial Forum' held on the 9th at the Chosun Hotel in Jung-gu, Seoul, delivering a lecture on the topic "The Role of Japan's Public Pension Fund (GPIF) in Japanese Corporate Governance Reform." Photo by Kang Jin-hyung aymsdream@