Japan's US$90b university fund struggles to draw talent despite size

Pedestrians in front of the University of Tokyo. Photo / Getty Images

Japan's university endowment fund, the world's biggest with US$90 billion ($129.8b) of capital, has managed to hire only a single fund manager with just months to go before its launch, despite enjoying the explicit backing of new prime minister Fumio Kishida.

Established in a desperate attempt to make Japanese scientific research globally competitive, the fund's failure to attract investment management talent was revealed by its chief investment officer Masakazu Kita — so far the only fund professional signed up.

In an interview with the Financial Times, Kita admitted that the fund's biggest challenge would be attracting top investment professionals given that its remuneration levels were well below international standards.

"It is true that we are trying to gather talent but the reality is that I'm the only one who has been hired so far," said Kita, a former money manager at Japanese agricultural lender Norinchukin Bank.

"For hiring, we want to set our compensation at a level that is competitive to a certain degree but we are also hopeful that [the prospective candidate] will empathise with the purpose of this fund," Kita added.

Announced in March, the fund marks a sharp break with Japan's traditional approach to financing innovation. It will be seeded with ¥4.5 trillion ($57.4b) of state financing when it starts investing from next March, and is expected to expand to ¥10t in "the near future" through university fundraising and additional government debt.

The fund is mandated to deliver an annual payout ratio of 3 per cent, from which it will support a wide range of scientific research with an emphasis on work that is currently restrained by conservative academic institutions. The idea behind the endowment is to convince young Japanese scientists that they can pursue trailblazing projects in a new, less risk-averse funding regime.

Concerns remain, however, over whether the fund itself will be too conservatively run to generate anything approaching the sort of returns generated by much smaller similar funds. Harvard University's US$42b endowment fund, for instance, has earned an average 11 per cent a year since its founding.

It will allocate 65 per cent of its investments to Japanese and overseas equities and 35 per cent to global bonds with its portfolio expected to include alternative assets, such as private equity and real estate.

Earlier this month, the fund, which will be managed by the education ministry's Japan Science and Technology Agency (JST), named the five members of its investment committee including Hiroshi Nakaso, the former deputy governor of the Bank of Japan, and Landis Zimmerman, chief investment officer of the Howard Hughes Medical Institute.

Government officials say the baseline salaries of the fund's investment professionals will be comparable to levels at Japan's Government Pension Investment Fund, the world's largest pension fund whose chief investment officer manages US$1.7t and earns about US$270,000 a year.

While money managers at GPIF can earn more than its CIO, the levels are still far below global standards with the chief investment officer of Harvard University's endowment earning about US$5 million.

"It is very difficult especially in Japan. JST is a public institution and the salary is not so flexible but if we want to hire very good talent from the financial industry, we need to set a competitive salary for them," said Sho Ito, deputy director of the Cabinet Office's Bureau of Science, Technology and Innovation.

Written by: Kana Inagaki and Leo Lewis

© Financial Times