Opportunities for New Entrants Still Exist in Japanese Asset Management Market, According to NRI Research

Nomura Research Institute, Ltd., a leading provider of consulting services and system solutions, today announced the findings of their annual research report on Japan's Asset Management Business (JAMB). This year's research suggests that the asset management industry's overall operating margin improved largely due to a regulatory change in addition to companies' individual efforts to boost profitability^*.

NRI's 2011/2012 JAMB details Japanese investor trends, the current state of the asset management business, asset management firms' priorities, as well as market trends by segment. The findings are a combination of NRI research and NRI's annual survey of asset management companies.

The asset classes in which the largest percentages of survey respondents expect AUM growth of 10% or more are commodities and foreign, chiefly emerging market, assets. Japanese asset management companies' outlook is more bullish than foreign asset management companies' in only two asset classes, domestic bonds (JGBs) and real estate.

"The Euro crisis is affecting the Japanese market, presenting a challenging environment for the asset management industry," said Shin Kusunoki, Corporate Senior Vice President and Asset Management Systems Division Manager, NRI. "Japanese household financial assets total approximately 1400 trillion yen, some of which are expected to flow into mutual funds, providing a lucrative market for new entrants and offering substantial opportunity for revenues from the high demand for foreign-currency denominated assets."

Additional findings include:

• The Japanese asset management business is in a stagnation phase.
• Relative to fiscal year 2009, Japanese asset management revenues were up 4% by virtue of an increase in yearly average AUM, but failed to embark on a full-fledged recovery.
• Foreign asset management companies doing business in Japan remain bullish with 90% anticipating growth in AUM of 10% or more, versus only 40% of Japanese asset managers anticipating the same growth level.
• Reflecting changes in cost structure, the two biggest expenses cited were salaries and outsourced research (i.e. sub advisory fees paid to external asset managers and allocated costs charged by foreign asset management overseas parents.)
• Among foreign asset management companies, headcount reductions decreased consecutively for the past two years.
• Since 2008, hiring freezes have declined sharply for foreign asset management companies indicating that they are quick to adjust staff size, allowing them to remain nimble over an extended down trend.
• Foreign asset management companies generally plan to add staff to their front office, middle office, sales and marketing operations, while somewhat reducing staff in organizational functions less integral to competitiveness, such as back-office operations. This indicates their ability to shift organizational priorities strategically over a long period of time.
• Japanese firms are generally projecting small decreases to headcount across all organizational functions, with the sole exception of overseas operations, where expansion is anticipated.
• For large Japanese asset management companies in particular, seeking new clients overseas is an inevitable trend.

Published by NRI's Kusunoki, the 2011/2012 report was authored by NRI's Financial Technology and Market Research Department. Contributors included Senior Researchers: Sadayuki Horie, Hisashi Kaneko, Hitomi Kawahashi, Researcher: Atsuo Urakabe and Consultant: Hiroko Tominaga.