Passively managed foreign equity, dynamic hedging, commodities exposure and “downside-risk-managed multi-asset” products are all underserved niches experiencing considerable demand in Japan’s asset management market, according to the latest of Nomura Research Institute’s respected annual papers on the business.
Many firms “have yet to offer such products even though they recognize that the products are in strong demand” the publication notes. This fits with the finding that managers’ “outsourced research” expense grew to the equivalent of 24% of fee revenue in the financial year to 31 March 2011 with several companies seeing it rise by more than 1 billion yen.
“Outsourced research” means sub-advisory and similar costs. These rose by a 2% during the term, negating a 2% fall in personnel outgoings which – at 30% of fees – are still the largest expense.
The trend also illustrates the extent to which Japanese firms have allowed their business to become hollowed out by failing to expand abroad and gather expertise there.
NRI characterises the business as currently being in a “stagnant” phase and an increased focus on cost cutting seems inevitable.
Budgetary control cut outsourced IT and printing expenses by 3% in 2010/2011 and that, together with personnel savings, enabled operating margins to increase by a sizeable 3% to 18% of income.
Asset management revenues during the year were 570 billion yen, up 5% on the previous term, on assets under management of 359 trillion yen, up by 4tr yen.
The new document discusses demand from retail, pension fund and financial institution clients and fits the market’s demographic and other issues with the profitability outlook. At 22 pages it is worth a read even by those well versed in the market.
The study is based on survey results and the firm’s own analysis. Its finding that fund management is still “a potentially lucrative market … for … new entrants from overseas” was first reported in November last year when it appeared in NRI’s yealy Lakyara paper (see November archive Nomura Research Institute on target again) by Sadayuki Horie.
On 31 March 2011 US$1 = 82.777 yen. On 11 April 2012 US$1 = 76.92 yen
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