An unprecedented move into risk assets by Japan's large public funds will present money managers with challenges but even bigger opportunities in coming years, industry executives say.
Roughly $400 billion in public pension fund money could flow to domestic and international equities from Japanese government bonds within a few years, “a huge opportunity for fund managers around the world,” Takumi Shibata, CEO of Nikko Asset Management, Tokyo, said in an e-mail.
That opportunity will not come easily, however.
The concentration of assets in a small number of hands, led by the ¥137 trillion ($1.14 trillion) Government Pension Investment Fund, Tokyo, is poised to magnify the importance of their choices in Japan's money manager marketplace.
In Asia's biggest institutional marketplace, managers could find themselves with “very few at-bats,” in comparison with a big, fragmented pension market such as the U.S., said Daniel Celeghin, Hong Kong-based partner and head of Asia-Pacific for Casey, Quirk & Associates LLC, a strategic consultant to the money management industry. If the biggest public funds turn negative on a particular manager, opportunities for that firm could quickly evaporate, he said.
In the market environment developing in Japan, winning business from big public funds has to be a cornerstone of any manager's institutional business plan, said Alex Sato, CEO of Invesco Japan, Tokyo. And the bar for taking advantage of those opportunities is rising, with top-quartile performance needed to come to the table, he said.
Other ripple effects from the concentration of public money in Japan could include further fee compression and greater allocations to passive or systematic “smart beta” offerings, as opposed to actively managed strategies, analysts predict.
But Nikko's Mr. Shibata predicted any negatives will be outweighed by the positives.