A modest annual return posted by Japan¡¯s mega-fund for universities shows the limitations of the scheme that is intended to revitalise the county¡¯s research-intensive institutions, according to experts.

The ?11.1 trillion (?55 billion) endowment posted a 1.7 per cent return for the 2024 fiscal year after seed funding was invested in stocks and bonds, according to its annual report published this month.

Although?an improvement on the deficit it posted in its first year in operation, the figure, which amounts to approximately ?150 billion, is only about?half the ?300 billion it was expected to generate annually.

A small portion of the profits from the fund is intended to go towards helping students, while the rest is being reinvested in research at specially chosen universities.

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Only Tohoku University has been approved for funding to date, receiving ?15.4 billion in its first year, while eight other universities await approval.

The Japan University Fund attributed its restrained return to a ¡°more conservative portfolio¡± and said that its ¡°ramp-up¡± period was still continuing after its launch in March 2022.

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Falling global interest rates and uncertainty over US Federal Reserve policy and trade tensions were blamed for market volatility, contributing to lower than expected returns.?

Akiyoshi Yonezawa, professor of higher education at Tohoku University, told ÌÇÐÄVlog that the Japanese government itself acknowledges that performance ¡°has not reached the expected level¡±.

¡°This scheme is still in its?initial stages,¡± he said. ¡°It¡¯s not yet ready to provide full-scale support?to universities for international research excellence.

¡°Before launching this university fund scheme, the Japanese government had no means of significantly increasing public investment in leading research universities,¡± Yonezawa added.

¡°This scheme represents a significant opportunity ¨C but it also adds to Japan¡¯s already huge government debt, which stood at 237 per cent of GDP in 2024 and must be repaid.¡±

The professor also highlighted that, while the fund supports the broader goal of fostering universities of international research excellence, ¡°there is still a long way to go before confidence is established¡±.

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Sayaka Oki, professor of the history of science at the University of Tokyo, said the return reflected the fact that the scheme was a ¡°product of compromise¡±.

¡°I¡¯m not sure the government is truly focused on building world-class research universities,¡± Oki said.

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¡°While that goal is important, the government ¨C especially the main fund sponsors ¨C appear more focused on developing infrastructure for military innovation.¡±

She argued that the fund¡¯s conservative management aligns with these broader motivations. ¡°The fund avoids risk and is not ambitious, but if other priorities exist, this is understandable.¡±

At the time of launch, some questioned Japan¡¯s?approach to funding higher education through investments, given that university excellence funds in other countries generally rely on direct government funding.?

Oki also expressed concerns about the model¡¯s future due to it being ¡°too protectionist¡±.

¡°Universities theoretically could have their own funds, but regulations restrict risky investments. Most university portfolios in Japan are conservative, holding stocks and bonds but rarely alternative assets or private equity. The scheme doesn¡¯t encourage universities to pursue ambitious strategies,¡± she added.

The model, whereby profits from the fund will be distributed to universities for up to 25 years, also means the scheme requires institutions to ¡°plan...ahead without full control¡±, she added.

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¡°I worry about who takes responsibility and how management will be handled.¡±

tash.mosheim@timeshighereducation.com