The new liaison between Nippon Life Group and Putnam Investments should be the tip of the iceberg in terms of deals between big Japanese players and foreign money managers, some experts believe.
In itself, the Nippon-Putnam deal was big news. Nippon is Japan's largest insurer, and Putnam, with more than $190 billion under management, is a giant among U.S. players. Their alliance might further spur other Japanese institutions to find liaisons that can help them competitively in Japan.
But even before the Nippon-Putnam announcement, more pairings between Japanese and foreign partners were surfacing.
In March, American International Group, New York, created a Tokyo-based investment management joint venture with Mitsubishi Trust and Banking Corp., Tokyo. Early this month, Chiyoda Mutual Life Insurance Co., Tokyo, formed what was reported to be a three-year deal with Indosuez Asset Management (Japan) Ltd. to receive advice on managing Asian equities outside Japan.
Looking forward, there's talk that a large Japanese property/casualty insurer is negotiating to form an important alliance with a foreign money manager. And that should be nowhere near the end of it.
"There will be a continuing wave of reorganizations in the industry (in Japan) that will involve subsidiary relationships. These could be tight formal ones, such as joint ventures, or looser cooperative ones," predicts Barry Gillman, president of consulting firm Farris, Gillman & Associates Inc., Fort Lee, N.J.
Said Jeffrey Hansen, a director of international management consulting at Frank Russell Co., Tacoma, Wash.: "It takes a number of years to get a relationship operating smoothly. Considering that, and the time needed to prepare for extensive deregulation, a lot of firms should be moving on this very soon."
Of course, there have been a number of alliances between Japanese and foreign firms in the past. These were in response to certain regulatory problems for foreigners, or companies' marketing needs.
But with current Japanese pension liberalizations and expected further "big bang" financial deregulation, the competitive pressures have intensified. Since Japanese pension funds can now invest more aggressively, more are becoming dissatisfied with options such as insurers' general accounts yielding 2.5%.
Instead, they want portfolios, such as foreign/global equities accounts, with expected higher returns, and managers that can provide them.
On top of that current trend, the advent of defined contribution plans is expected in the next year or two. When that comes, it will require further adaptation by money managers interested in that business.
To take advantage of such developments, more Japanese institutions are looking beyond their borders for help.
In early June, Boston-based Putnam Investments signed a collaborative agreement that had two main features: Putnam will develop investment products and manage global assets outside of Japan for parent Nippon Life, based in Osaka. And, with Nippon's Nissay Asset Management Co. subsidiary, it will jointly market and manage international products to Japanese pension sponsors.
Putnam already had been an investment adviser in Japan. That Tokyo-based operation, with just more than $2 billion under management, will continue to focus on its mutual fund business sold through brokers and management of "tokkin" accounts. Through its collaboration with Nippon, Putnam will address the Japanese pension market, said John Telanian, a managing director, investment management, Pacific Basin for Putnam.
But Putnam is not the only firm with which Nippon has an important relationship. Nippon already had been using PanAgora Asset Management, Boston - in which Nippon has a 50% stake - in a subadvisory capacity for global investing.
PanAgora runs about 11 quantitatively managed accounts for Nippon Life; the amount of assets could not be learned. And at the beginning of 1996, PanAgora became a subadviser to Nissay Asset as well.
In that capacity, PanAgora has since won two Japanese pension fund mandates - from the funds of Daihatsu Motor Co. Ltd. and Nitto Denko Corp. - to manage 2 billion pounds each of non-Japanese equities, said Bruce Clarke, chief executive officer.
Takeshi Furuichi, president of NLI International Inc., New York, a subsidiary of Nippon Life, explained why it was beneficial to have relationships with more than one outside manager. To remain competitive, the company needs to "supply the full line of services to clients," he pointed out.
While PanAgora has satisfied clients' global investment needs "to some extent, there also has been a missing element. That has been the ability to offer international investing that uses a judgmental," rather than quantitative, approach, he said.
As part of the new deal, Putnam will collaborate in the trading of investment, marketing and client services professionals. Some of this sharing should prove useful, especially if defined contribution plans are approved in Japan. But to Mr. Furuichi, the most important issue is that Nippon "has to learn more about global asset management in general."
Marching to their own tune, AIG and Mitsubishi Trust this March jointly created AIMIC Investment Management Ltd. in Tokyo. AIG, through its indirect subsidiary AIG Global Investment Corp., owns a 70% stake in the new entity, while MTBC and its affiliates have 30%. According to AIMIC's president Kai Sotorp, "what we've done is different from many things out there." "We created a working company" with broad global capability, he said. Right now, he said the firm is managing a mix of assets, active and passive Japanese equities, Japanese bonds and a series of global portfolios. And it plans to bring in emerging markets and eventually, alternative investing offerings.
Although Mr. Sotorp wouldn't say how much money AIMIC has under management, "you can say we have outside pension clients," he said. "And we expect to receive (other) mandates in the relatively near future."
In addition, the firm already has launched a global bond investment trust for the institutional market. And in July, it will launch a global balanced fund for institutions and individuals.