If done right, Japan’s new national endowment fund to support university research could yield massive benefits. But the next several years will be critical for putting its asset portfolio on a better footing, selecting appropriate recipients, and setting conditions to shape how its resources are deployed.
TOKYO – Rightly concerned about a decline in Japanese universities’ research capabilities, the Japanese government has created a ¥10 trillion ($67 billion) fund to address the problem. While cash accounts for around 11% of the new University Fund of Japan (UFJ), the remaining 89% takes the form of a 20-year “loan” from the government, which borrowed the money from the market at a very low interest rate.
Overseen by a team of newly hired professional asset managers, management of the UFJ began in March 2022. The goal is to generate an annualized return of at least 3% above the rate of inflation, to offset the 3% of the principal (¥300 billion) that will be distributed to select universities each year. While many Japanese observers consider a 3% real return too high, most US and Canadian asset managers (such as those running pension funds and endowments) would see it as a rather low bar.
In any case, whether the target can be achieved in the long run depends on the portfolio. When I chaired the committee that laid the groundwork for the UFJ in 2021, we recommended a benchmark of 65% global equities (including alternative assets such as private equity, venture capital, and infrastructure funds) and 35% global fixed-income assets.
TOKYO – Rightly concerned about a decline in Japanese universities’ research capabilities, the Japanese government has created a ¥10 trillion ($67 billion) fund to address the problem. While cash accounts for around 11% of the new University Fund of Japan (UFJ), the remaining 89% takes the form of a 20-year “loan” from the government, which borrowed the money from the market at a very low interest rate.
Overseen by a team of newly hired professional asset managers, management of the UFJ began in March 2022. The goal is to generate an annualized return of at least 3% above the rate of inflation, to offset the 3% of the principal (¥300 billion) that will be distributed to select universities each year. While many Japanese observers consider a 3% real return too high, most US and Canadian asset managers (such as those running pension funds and endowments) would see it as a rather low bar.
In any case, whether the target can be achieved in the long run depends on the portfolio. When I chaired the committee that laid the groundwork for the UFJ in 2021, we recommended a benchmark of 65% global equities (including alternative assets such as private equity, venture capital, and infrastructure funds) and 35% global fixed-income assets.