Brinson Partners Inc.'s newly formed joint venture with Long-Term Credit Bank of Japan's investment management unit will create a "big gun" in the Japanese asset management business in anticipation of the Big Bang deregulation of the country's financial industry.
The teaming, part of a larger joint venture of Brinson's parent, Swiss Bank Corp., with the LTCB, is the largest venture involving a Japanese and foreign company set up to do business in Japan's huge financial services market.
LTCB SBC Brinson - as the venture will be known - will enter the money management business in Japan with $8.7 billion in assets from Japanese investors, including $7 billion from Japanese pension funds.
The assets will come from transferring to the new entity all assets under management of LTCB Investment Management Co. Ltd. of Tokyo, which is known as LIMCO.
LIMCO ranked as the sixth largest asset manager in Japan, as of March 31, said Benjamin F. Lenhardt Jr., managing partner in charge of international business for Chicago-based Brinson.
Long-Term Credit Bank and Swiss Bank each will own 50% of LTCB SBC Brinson.
Mr. Lenhardt said the new venture should start within a few months. First Brinson must dissolve its 7-year-old joint venture with Yasuda Fire & Marine Insurance Co. Ltd., Tokyo.
Yasuda Kasai Brinson, as that venture is called, manages $2.8 billion for Japanese clients, including $2.2 billion for Japanese pension funds.
YKB ranked as the 18th largest manager in Japan, as of March 31.
Mr. Lenhardt said the companies are negotiating the sale price of Brinson's share of YKB to Yasuda. Mr. Lenhardt declined to disclose the ownership arrangement, although he noted Brinson owns less than 50% of YKB.
The Yasuda Kasai Brinson assets will remain with YKB. But he noted, "Some clients are mutual" with LIMCO. "So it's very possible some clients will move money to LTCB SBC Brinson, but also clients may elect to stay" with YKB.
The new LTCB SBC Brinson asset management venture is one of three joint ventures in a wide-range of financial services Long-Term Credit Bank and Swiss Bank are forming in Japan. The other two are in investment banking and private banking.
"This kind of thing will happen more," said Toshi Matsumae, New York-based director-Japan product management, BARRA Inc.
In asset management, "the move to deregulate will sweep the Japanese market over the next two or three years."
The deregulation is expected to allow pension funds and other institutional investors more freedom or even complete discretion to make asset allocation decisions, including investing abroad.
Mr. Matsumae said Japanese banks, insurance companies and securities brokerages worry about U.S. and other foreign money management powerhouses entering the Japanese market. To retain as much of their share as possible, he said the Japanese companies are seeking from U.S. firms more expertise in asset management and even possible joint ventures. He said Japanese money managers may find a joint venture less costly and risky than trying to build global money management capabilities.
Such joint ventures aren't problem-free. "The toughest part is organization building," Mr. Matsumae said. Japanese companies tend to be bureaucratic, while the foreign companies are more entrepreneurial.
Japan has the second largest pension fund market - and overall asset management pool - in the world behind the United States, according to Messrs. Matsumae and Lenhardt. Japanese pension funds had $1.1 trillion in total assets at the end of 1996.
But "the assets have been undermanaged," the vast majority in Japanese securities because of tight regulations, Mr. Matsumae said.
Said Mr. Lenhardt: "It's expected over the next few years Japanese investments outside of Japan will increase."
He estimated only 5% to 7% of Japanese pension and other managed assets are invested in markets outside Japan. With deregulation, he suggests that number could grow to at least 25% to 30% in a few years.
Although Tokyo-based LTCB SBC Brinson clearly is aimed at the Japanese market, Mr. Lenhardt said offices in Chicago and London are possible, for marketing and client services for Japanese multinationals.
He said it will focus on managing assets for Japanese pension funds and on creating mutual funds.
Mr. Lenhardt expects the venture to offer Japanese investors a wide-range of global investment portfolios and strategies.
In terms of mutual funds, LIMCO has none now, he said.
He noted the entire Japanese market is underserved by mutual funds. In Japan the value of mutual fund assets equals only 10% of the country's gross domestic product, while in the United States mutual funds total 38%.
Yugi Kage, now president of LIMCO, will head LTCB SBC Brinson as its president. Mr. Lenhardt expects two Brinson professionals at YKB will move to the new venture. Mr. Kage will report to the LTCB SBC Brinson board of directors that will be created. Mr. Lenhardt expects he will be a director on that board.
Gary P. Brinson, president of Brinson Partners and chief investment officer of Swiss Bank's institutional business in Switzerland, is expected to be a member of the higher-level steering committee, a more powerful board of the overall venture of Long-Term Credit Bank and Swiss Bank. Mr. Lenhardt said the steering committee will oversee each of the three joint ventures, each of which in turn will have its own board.
