After compiling the data, the fund’s board of governors will review the decision in a process that may not be complete until Miyazono’s term ends in March 2025, he said.

Masataka Miyazono

“We want to focus on what impact there has been on stock prices,” Miyazono said. “Having looked at the data, the board of governors can discuss it again, and then further talk about whether or not” to lend foreign stocks, he said.

The GPIF shocked markets in 2019 with its decision to stop the practice, triggering worldwide discussion on the merits of short-selling. The move elicited reactions from investors including Tesla Inc. Chief Executive Officer Elon Musk, who supported the move, and short-seller Carson Block, who was against it.

At that time, the fund said the practice was inconsistent with its stewardship code, as it created a vacuum in ownership when shares changed hands. The GPIF began lending foreign stocks in 2014 to boost performance, taking in 35.6 billion yen in revenue in the three years to March 2020.

While the GPIF did not explicitly link the halt to short-selling, Hiromichi Mizuno, then the chief investment officer, said in subsequent comments that such trades were not consistent with delivering “long-term value creation.” Mizuno joined Tesla’s board after leaving the fund.

Miyazono said he had yet to decide what form the study would take. However, Japanese shares will not be part of the review, he said. Even before the 2019 halt, the GPIF did not lend domestic stocks, and Miyazono said any change to that status would come after a decision on foreign shares.

Next Portfolio

Miyazono, 68, took over the GPIF in April 2020, a few months after the halt. He spent most of his career at the agricultural lender and major institutional investor Norinchukin Bank, before heading the Pension Fund Association, a smaller government pension manager.

Since joining, he has overseen a record seven straight quarters of gains with the fund’s basic portfolio, which increased the weighting of foreign debt over Japanese government bonds at the start of his tenure.

When Miyazono’s term ends, he will hand off the fund with a new basic portfolio. Changes in allocation, which is typically reviewed every five years, can shift billions of dollars of value.

The last review in 2020 split investments evenly into four segments of Japanese and foreign bonds and equities. The 25% weighting of Japanese shares, versus the country’s 6% share of global equity market value, has spurred speculation that Japanese stocks may be reduced in the next review.

“The weighting of domestic shares will of course be on the table for discussion,” Miyazono said. “But the portfolio is all about balance. We can’t just focus on one segment.”

Beware of ‘ESG Bubble,’ Says Ex-Chair of World’s Biggest Pension

A growing portion of the GPIF’s equity holdings is dedicated to socially responsible investing. The fund’s investments in ESG indexes nearly doubled from a year earlier to 10.6 trillion yen as of the end of March 2021. The fund invests in seven ESG indexes, with four focused on domestic stocks.

“Right now we’re looking at comprehensive types of indexes for domestic stocks,” Miyazono said. “We’re looking to see if there are indexes that have more of what we want, such as the expected return or ESG impact.”