The latest edition of Nomura Research Institute’s occasional lakyara reports on asset management in Japan, which the firm produces for its clients in the US and UK, is now available and the series’ long-standing author Sadayuki Horie once again hits the target.
As the introductory summary puts it:
“The Japanese asset management business is beset by an adverse environment, but it still offers substantial opportunity to new entrants from overseas. Ample scope for growth still exists for new entrants that can meet the needs of investors periodically replacing underperforming asset managers and financial institutions’ need for portfolio diversification.”
The report looks at demand in three segments: retail investors, pension funds and financial institutions. Its advice for firms already in the market is to differentiate themselves …
“through not only investment performance but also portfolio-wide investment advice and improvement in the quality of asset management services, including client support. It will become increasingly important for incumbent asset management companies to capitalize on their individual strengths and differentiate their services offered to clients.”
There is an echo here of what both the Financial Times and Benefits Canada said far more forcefully in mid-year commentaries accompanying their annual pensions manager rankings. Benefits Canada summed up its thoughts in the headline “We need to talk” (See Institutional asset management’s global leaders 2011 in August archive on this blog.)
ijapicap view: Fund mangers will find it much more difficult to implement NRI’s wise words in secretive Japan than in the UK or North America.
Those markets have a free flows of information which support an expert pensions press that enables service providers to have a great deal of up-to-date information on sponsors’ general and specific needs. These media also provide both editorial and advertising space in which providers can let sponsors know what they have to offer and how they offer it.
With these building blocks in place firms can devote time and talent to finding out more about individual fund’s needs and proposing ways to a address them.
Japan, by contrast, does not have pensions media and sponsors regard information about their pension funds in the same way they regard data on any other aspect of the company’s business: it is a secret.
Until car maker A is able to see that its retirement scheme is not a zero sum exercise with that of car maker B, so that if one loses the other gains, both will lose in the pensions game. The winners will be the mighty trust banks which, because of their role as sokanji, have always been privy to the strengths and weaknesses in individual portfolios.
Foreign fund managers have done very well in winning mandates since the big deregulation of 1996. But they are now in danger of being overtaken by the trust banks whose return to dominance is even greater than it appears in the financial year-end ranking of top 40 pensions managers (see post in June archive “Getting on top in Tokyo”) .
The reforms that began in 1996 allowed domestic and foreign fund managers for the first time into a market until then monopolised by life insurers and trust banks – just as the US landscape had been before the 1976 Employee Retirement Income Security Act (ERISA).
The irony now is that while ERISA kick started the modern asset management business and produced a constantly evolving kaleidoscope of firms and disciplines, the Japanese version seems only, 15 years on, to be resulting in a return to giantism.
The giants are not to blame for this. They are at fault only to the extent that they have done nothing to change the bent to unnecessary secrecy.
The Ministry of Health, Labor and Welfare, the pensions regulator, rather than leading sponsors out of their overly shy ways, has encouraged secrecy by keeping confidential any and all information about identifiable retirement schemes. Bureaucrats from the Ministry are aghast when shown what is available through US sponsors’ form 5500 filings with the Labor Department as seen on www.freeerisa.com.
In terms of transparency MoHLW too is going backwards. Until the 2003/04 financial year it published the number of members and beneficiaries of all Employee Pension Funds in the annual report of the Pension Fund Association which it founded, funded and staffed. It then abruptly ceased such revelations. (In the same year it began to discover that it had lost the records of 65 million payments made by citizens into the national pension scheme.)
Some foreign fund managers are now putting greater emphasis on their relationships with trust banks whose sub-mandates they have rarely been averse to courting.
Aberdeen Asset Management began a “business and capital alliance” with Mitsubishi UFJ Trust & Banking in December 2008. MUFJ now distributes Aberdeen’s products and has increased what was initially a 9.9% shareholding in Aberdeen to 19% with 30% rumoured to be a possibility.
In July last year Standard Life Investments, the largest active manager of UK pension funds and, like Aberdeen Asset Management, headquartered in Scotland, “entered into a strategic alliance … for reciprocal asset management services” with Chuo Mitsui Trust & Banking. This began with Standard Life advising on around US$1.2bn of Chuo Mitsui’s global equity funds and the Japanese trust bank managing or advising on Standard Life’s about US$1bn in Japanese equity funds. More recently CM T&B has begun handling sales for SLI’s absolute return strategies.
The same old caveat applies in these cases: if the alliance comes to an end the foreign party may suddenly realise that they have never met a Japanese client and is not in a position to carry forward the business alone.
This is even more true when, as NRI’s lakyara report suggests, Japanese pension funds are looking for suppliers with detailed knowledge of their needs.
Note: For more on the role of sokanji see post “¥ trillions await liberation from pooled management” in July archive.
