TOKYO — Japanese retail investors are expected to shift billions of yen into investment trusts from savings accounts, creating a potential bonanza for domestic and foreign money managers.
Market-research firm Frost & Sullivan Inc. estimates Japanese investment trust assets will more than triple over the next several years, growing to ¥336.9 billion, or almost $3 trillion, by 2011, from ¥105 billion at the end of 2006.
Maria Canamero, a consultant at Palo Alto, Calif.-based Frost & Sullivan, said several factors will contribute to this staggering growth rate — 26.2% compounded annually — but perhaps none more than Japan’s rapidly aging population.
The impending retirement of Japan’s baby-boom generation will prompt more people to shift assets mainly parked in standard savings vehicles to investment trusts that offer the potential for greater returns. Individuals, she added, are seeking “more sophisticated” investment options to generate income for their retirement.
Such a shift is presenting a number of attractive opportunities to both Japanese and foreign financial services companies, said Sadayuki Horie, a senior research at Nomura Research Institute Ltd., Tokyo.
Currently, only about 20% — ¥413 trillion — of the nation’s roughly ¥1,750 trillion in combined retail and pension assets are actually run by investment managers, according to a new report from Nomura Research.
Mostly from pension funds
The vast majority of the money run by investment managers comes from Japanese institutional investors. Roughly 75% of the ¥413 trillion in managed assets comes from Japanese pension funds and financial institutions. Overall, Japanese pension funds have ¥300 trillion in assets, according to Nomura.
This means the individual pool of assets is largely untapped, and Mr. Horie, like Ms. Canamero, believes the most significant growth opportunities over the next several years will come from individual investors, whose assets add up to roughly ¥1,450 trillion, according to Nomura. (A portion of this total includes money from banks and insurance companies, whose portfolios are funded with retail customer deposits).
“Individual investors are gaining confidence in the markets and the economy, which is also creating a greater overall appetite for quality investment products,” said Mr. Horie.
But non-Japanese asset managers face numerous obstacles to making inroads with individual investors.
Ms. Canamero pointed out that slightly more than half of the investment trust assets in Japan are managed by large Tokyo-based asset managers — such as Nomura Asset Management Co. Ltd., Daiwa Asset Management Co. Ltd., and Nikko Asset Management Co. Ltd. — with significant name recognition and distribution advantages.
In recent years, these larger Japanese firms have grabbed local market share at a significantly greater clip than foreign money managers.
Over the last four years, the seven largest gainers of market share were Japanese managers, while foreign firms Pictet Asset Management, Fidelity Investment and State Street Global Advisors were eighth, ninth and 10th, respectively, according to Nomura Research (see accompanying table).
Japanese managers have major distribution advantages over foreign competitors, Mr. Horie said, and these firms have the size and scale to support Japan’s primary distribution channels — megabanks, regional banks and Japan Post, the country’s post office which also serves as a financial institution.
Foreign managers are playing a significant role through subadvisory assignments, however, and Mr. Horie said this will likely accelerate over the next several years.
“On the surface, it appears that local managers have gained more assets than foreign managers, but the subadvisory business has had a very high growth rate for foreign firms,” Mr. Horie added.
Nomura’s research reveals that foreign firms effectively run close to 50% of Japanese investment trusts’ aggregate assets under management.
Most frequently, according to the report, foreign managers have capitalized on the subadvisory market by focusing on their core strengths, particularly currency strategies.
In addition, Japanese retail investors in Japan recently began favoring balanced funds that have significant allocations to overseas asset classes, Mr. Horie added. At the same time, domestic managers increasingly have outsourced the management of these foreign asset classes to non-Japanese firms, a trend that Nomura Research officials said will continue over the next several years.
