Japanese pension funds, which collectively manage more than $400 billion in assets, are embracing a notable shift in strategy by appointing chief investment officers (CIOs) for the first time. The move is part of a broader effort to enhance returns in a market defined by volatility and structural reforms.
One prominent example is the Organization for Small & Medium Enterprises and Regional Innovation Japan, or SME Support Japan, a state agency supporting smaller firms. In April, it created a CIO-equivalent position and appointed Takashi Yamashita, a seasoned strategist who previously contributed to the portfolio design of the Government Pension Investment Fund (GPIF), one of the world’s largest retirement funds. Yamashita is now responsible for overseeing ¥12 trillion ($83 billion) in assets aimed at supporting small businesses.
In addition to SME Support Japan, two other public-sector pension funds have introduced similar investment leadership roles. Collectively, the three executives now manage over $400 billion in assets. These appointments closely follow the Japanese government’s 2023 declaration of investment principles, a policy initiative to strengthen asset owners’ risk management and improve investment execution.
“These CIO appointments signify a growing awareness of the need to enhance investment capabilities,” said Hironari Nozaki, a finance professor at Toyo University. He emphasised the importance of selecting individuals with genuine investment expertise, rather than assigning such responsibilities to traditional administrative executives, and advocated granting them broad decision-making authority.
Historically, Japanese pension fund investment decisions have been managed by senior administrators with limited exposure to financial markets. The introduction of CIO roles marks a decisive break from that model, driven by concerns around continued market instability. Uncertainty over future interest rate hikes by the Bank of Japan and global market disruptions linked to former US President Donald Trump’s tariff policies have added to the urgency of reform.
While global peers began appointing CIOs as early as the 1990s to improve performance, Japanese funds are only now catching up. GPIF was an early adopter by local standards, having created its CIO role over a decade ago. The fund shifted from its traditional reliance on domestic bonds and achieved cumulative investment returns of over ¥164 trillion as of the fiscal year ending March 2025, with an annualised gain of 4.4%.
By contrast, SME Support Japan has reported an average annual return of just 2% over the past decade. Approximately 80% of its portfolio is allocated to domestic bonds under direct management. Under Yamashita’s leadership, the fund is currently reviewing its asset allocation strategy.
Meanwhile, two more major funds have taken similar steps. The Federation of National Public Service Personnel Mutual Aid Associations, known as KKR, with assets of around ¥10 trillion, appointed Akihiro Konishi as its CIO. Konishi previously led the organisation’s fund management division and worked at DBJ Asset Management.
The Pension Fund Association of Local Government Officials, or Chikyoren, which oversees ¥36 trillion, strengthened its oversight with dual appointments: a CIO-equivalent position and an independent risk officer. Tatsuya Morishita, a former investment team member and ex-employee of what is now Sumitomo Mitsui Trust, was named to the CIO role.
Chikyoren and KKR have worked with GPIF to develop model portfolios, each targeting a 25% allocation to both domestic and foreign stocks and bonds. Their CIOs are now tasked with enhancing returns while maintaining tight risk controls.
According to Bank of Japan data, public and corporate pension funds in Japan held a combined ¥513 trillion in assets as of December 2024, roughly equivalent to India’s annual economic output. While public entities such as GPIF, KKR and Chikyoren have led the way in adopting the CIO structure, uptake in the private sector remains limited.
As of the end of May, 14 public pensions and 140 corporate pension funds had signed on to the government’s investment principles, a foundational step towards more dynamic capital allocation. However, due to the lack of standardised job titles in Japan’s pension industry, the exact number of CIOs remains unclear. Market participants believe it is still a small cohort.
Toshiki Umeuchi of NLI Research Institute noted that while CIO-led institutions must operate within broad portfolio guidelines, variations in investment execution will ultimately drive performance differences.
-Bloomberg
