Opalesque Industry Update - Myriad changes--macro and micro--support a Japanese institutional move to award mandates to foreign managers. Sub-advised funds accounted for 65% of investment trust assets under management at June 30, 2013, up from 61% in 2008, according a joint report from Cerulli Associates and Nomura Research Institute, Ltd (NRI) entitled Asset Management in Japan 2013: Opportunities and Challenges for Foreign Managers. |
The report is the inaugural result of the collaboration by Cerulli Associates, a global analytics firm specializing in asset management and distribution trends, and NRI, a leading provider of consulting services and system solutions.
Sub-advisory arrangements can take two basic forms, either in a discretionary mandate (¥12.4 trillion, US$126.5 billion, as of June 30, 2013), or a fund of funds brief (¥15.0 trillion). Hybrid arrangements account for another ¥12.1 trillion assets under management (AUM). The sub-advisory market offers ample opportunities for foreign managers, particularly in areas like foreign equity and foreign real estate investment trusts where sub-advised funds account for more than 90% of AUM.
"Gradual diversification of Japanese banks' portfolios from Japanese Government Bond (JGB) to foreign securities and changes to pension fund governance spell greater opportunities for foreign managers," said Yoon Ng, Asia Research Director at Cerulli Associates. "The strongest interest for advisory products will come from asset classes like foreign fixed income and foreign equity, followed by emerging markets.”
"Foreign managers wanting to break into the Japanese market as a sub-advisor should target their sales activities at major investment trust companies as well as pension funds," said Sadayuki Horie, Senior Researcher at NRI. "Pension funds have started increasing their use of foreign managers, even for those without a local physical presence. It is crucial for foreign managers to ensure that these institutions are aware of where their expertise lies as they are on the lookout for distinctive asset managers from around the world.”
Key observations from the report on the Japanese investor landscape include:
- Japan's pension funds are the country's largest institutional investor bloc with total assets of ¥277 trillion, as of March 31, 2013.