Japan's two biggest asset owners, a mother lode of mandates for money managers in recent years, are downsizing the bounty managers entrusted with investing their money can hope to enjoy in the way of fees.
Japan Post Bank — the biggest kid on the block with ¥207.7 trillion ($1.9 trillion) in assets — is moving to reduce its external manager fees as part of a restructuring of its portfolio, according to money managers, who declined to be named.
The bank's ¥39 trillion — or $355 billion — in offshore credit mandates as of March 31, up almost 300% in the past three and a half years, made the former government-owned behemoth a client that could single-handedly make the difference between a decent year and a great year for foreign managers in Japan.
But the scale that made Japan Post Bank the best friend of active bond managers in recent years is cutting both ways now.
Katsunori Sago, the senior Goldman Sachs & Co. executive who joined Japan Post Bank three years ago as representative executive vice president to build its portfolio investment team, told Pensions & Investments in November that because of the size of its portfolio, the bank had effectively "become the market," and would have to focus on beta more than alpha for returns.
That transition is already well advanced for the bank's U.S. investment-grade credit holdings, which make up the bulk of that $355 billion portfolio, said one Tokyo-based money management executive, who declined to be named. The bank's ultimate goal is to shift 80% of its credit holdings into passive strategies, he added.
For the investment-grade segment, switching to passive from active mandates means a drop in Japan Post Bank's fee burden to 5 basis points or less from roughly 10 basis points, said money management executives, who declined to be named.
More recently, the bank began to restructure the more than $40 billion in bank loan mandates it awarded roughly 10 firms, a more challenging prospect as bank loans don't lend themselves to passive management, executives said.
Even so, the bank is looking to slash its typical fee for bank loan strategies to 15 basis points from 30 basis points, industry executives said.
With the shift to lower fee strategies, mandates for active managers, such as Fidelity Investments and Invesco Ltd., will be trimmed, while allocations to managers with a more passive approach, including BlackRock Inc., J.P. Morgan Asset Management and State Street Global Advisors, will increase, said a Tokyo-based executive with a foreign bond manager, who declined to be named.
Spokesmen for the managers declined to comment or did not respond to requests for comment.
In a June 15 email, Mr. Sago — noting his then-pending June 19 departure to join SoftBank Group Corp. — declined to comment on changes to Japan Post Bank's credit portfolio, deferring questions to his successors.
Kunio Tahara and Taiichi Hoshino, the senior Japan Post Bank executives set to replace Mr. Sago at the helm of the bank's investment portfolio, didn't respond to emailed questions. A Tokyo-based spokesman said Japan Post Bank doesn't provide details of its manager lineup or portfolio construction.
Meanwhile, Japan's other Tokyo-based whale — the ¥162.7 trillion Government Pension Investment Fund — on June 11 announced details of its well-telegraphed plans to pay only passive fees to managers that fail to deliver alpha.
For managers that do produce alpha, the GPIF's "working paper" outlined its formula for determining the share managers can retain as well as its mechanism for ensuring that losses incurred along the way are recovered before managers rack up performance fees.
Since October 2014, when GPIF boosted its target allocations for risk assets, the pension giant's combined mandates to managers of overseas stocks and bonds have risen by more than $225 billion, with roughly 20% of that total actively managed.
