Visitors to Japan's public pension fund can't miss signs of the low-cost, low-return culture that Prime Minister Shinzo Abe seems determined to change with a review of its operations that kicked off on Monday.
There is no receptionist at the dimly lit, 40-year-old Tokyo building where the headquarters of the Government Pension Investment Fund, the world's largest pension, occupies the second floor.
The waiting area consists of two mismatched couches. Behind a single closed door, over $1 trillion - equivalent to the annual economic output of South Korea - is run almost on autopilot and invested largely in government bonds issued across the street by Japan's Finance Ministry.
Equally worrying for critics, including members of Japan's ruling Liberal Democratic Party, the fund has no independent board for oversight, no ability to hire in-house fund managers and no record of success during a period of economic growth of the kind Abe has pledged to deliver to voters and markets.
Officials led by chairman Takahiro Mitani say the fund, known as GPIF and which employs less than 80 people, has performed according to the mandate set by its supervisor, the Ministry of Health and Welfare: keep costs down and risks in check.
What happens next, they say, will depend on the reforms the Abe administration enacts in the coming months as it looks to mobilise public savings to help drive Japan out of two decades of deflation and sluggish growth.
"We are the target of a review," Tokihiko Shimizu, the director-general of GPIF's research department told a hedge fund seminar last week, explaining crucial decisions would now be made by others. "We are like the carp on the chopping block."
On Monday, an advisory panel to Abe met for the first time to consider wide-ranging reforms that could see GPIF shift more money into stocks, foreign assets and less conventional investments such as infrastructure funds, as well as emerge as a more independent fund with deeper expertise.
"All we can do right now is calmly wait for the outcome of the panel," Mitani told Reuters in an interview late last month. "We'll obey the government's decision if it decides to change the law or the framework for us to be more aggressive."
"LOW PROFILE, LOW COST, LOW RISKS"
In 2010, a report by the Organisation for Economic Cooperation and Development (OECD) said GPIF was being run as a "low profile, low cost and seemingly low risk institution".
The Paris-based think tank recommended a shake-up that would give GPIF full independence from the Health and Welfare Ministry, which was given oversight of the fund in 2001.
Until then, funds had been entrusted to the Finance Ministry. But in the wake of criticism that money was being used to bankroll public sector entities and local government projects, control shifted.
"Almost all the fund management is outsourced and just left up to others. That is no good," said Yasuhisa Shiozaki, an LDP lawmaker and a former official at the Bank of Japan. "It's also crazy that at the top of the structure is the health minister, who has no expertise in fund management."
A prime example of GPIF's conservative approach is asset allocation - changes last month to its portfolio strategy were the first since 2006.
Under those changes, GPIF cut its target allocation of Japanese government bonds to 60 percent from 67 percent and raised its allocation of Japanese stocks to 12 percent from 11 percent. The changes reflected where its portfolio stood and kept it from having to sell stocks and buy more bonds to stay within mandated ranges.
Allocation shifts can be made with the approval of the GPIF chairman and the health minister.
REFORMS BEEN RECOMMENDED BEFORE
GPIF has been the target of reform efforts before.
Two government-led panels, one in 2008 and the other in 2009-2010, recommended changes including splitting the massive pool of money into smaller funds.
The earlier calls for change went nowhere, but officials involved in the effort say this time is more serious because of Abe's determination to see through a popular economic agenda.
A more aggressive investment portfolio weighted toward stocks -- including foreign assets -- could help bolster sentiment in Japan. It could also weaken the yen, which would help exports.
"It's one of the few levers Abe has," said Itay Tuchman, head of foreign exchange at Citigroup in Tokyo.
GPIF has a target of returning just over 1 percentage point above average wage increases. Wages have dropped by almost 1 percent per year over the past nine years. GPIF's return over the same period averaged 2.4 percent a year.
If the fund's returns falter, the cost of supporting public pensions could rise for taxpayers, payouts could fall or it could be a combination of both as Japan's working population ages and retires, analysts have said.
By one projection, 20 percent of Japan's population will be pensioners over 75 years old by 2030. The share over 65 could be as high as one third of the population.
An economist from the University of Tokyo, Takatoshi Ito, headed the 2008 panel and will lead the latest one. The review would focus on both the fund's investment policy and governance, Ito told Reuters.
"I'm open minded about the types of issues we should discuss," he said on Friday.
The panel has a deadline of the third quarter to reach its conclusions so changes to GPIF and other public pensions that control another $1 trillion can be put in place by April 2015, in line with the government's growth strategy plan.
HARDLY BANKING-LEVEL SALARIES
GPIF's skeleton staffing has also come under scrutiny.
The fund employs so few people because of government rules that limit operating costs and restrict it from trading stocks on its own.
By contrast, Canada's public pension, the CPPIB, has seven times more staff to manage a fund one sixth the size. With more fund management expertise in-house, the Canada fund has outperformed GPIF over the past decade with a portfolio that is mostly equities.
Barred from luring star fund managers with banking-level salaries because of government-imposed controls on pay, GPIF has leaned heavily on outside fund managers. Sumitomo Mitsui Trust, BlackRock and Mitsubishi UFJ Trust are the leading outside fund managers, handling a combined $438 billion.
GPIF's highest paid employee is Mitani, who made the equivalent of $192,000 for the year ended March 2012.
Mitani, a former BOJ official, is open to change but said it will come at a cost.
"If we have to diversify and move into new areas and take on more risk, we need a workforce with the skills to manage those risks," he said. "We don't have such resources now."