FSA commissioner Mori boxes investment trusts’ ears

“Japanese investment trusts, or toushin, saw the first outflow of funds in six months in April, industry data showed on Tuesday, following scathing criticism of the industry from the head of the country’s financial watchdog” Reuters reports.

Much depends here on the definition of ‘outflow’, since in market value terms the field is not shrinking.

However the report’s significance is in its account of a speech given early in April by Financial Services Agency (FSA) commissioner Nobuchika Mori (pictured alongside) in which he “blasted the Japanese asset management industry for not catering to the true benefit of its customers”.

Numbers from the Investment Trusts Association show that at the end of April the outstanding value of publicly offered stock and bond trusts, bought manly by retail investors, was 98,835.3 billion yen, compared with 98,774.3bn yen a month earlier.

Privately placed stock and bond trusts, held mainly in institutions, showed a similar rise – from 76,826.0bn yen at the end of March to 77,949.1bn yen at 30 April.

In term of stock trusts alone, those offered to the public rose in value from 85,938.3bn yen at the end of March to 86,159.1bn yen a month later while those placed privately saw their value climb from 72,640.9bn yen to 73,742.2bn yen.

Mr Mori focused his remarks, according to Reuters, on what individuals get from their toushin investments, noting that the average return from about 280 active Japanese stock funds over the last 10 years, after deducting fees, has been 1.4%, with a third of them making losses, compared to average annual gains of 3% in the Nikkei stock index.

“How long are you going to keep this practice?”, the commissioner asked before questioning whether customers who do not get a decent return on financial products go on to build such investments.

“After the FSA’s comments, staff are in the dark on what they should sell, or recommend to their customers,” an executive at a European asset management firm told Reuters. As a result sales has almost stopped

Again definitions are important and it is not known if the “practice” to which Mr Mori referred embraced not only poor investment performance but also the way  investment trusts are peddled, often on the telephone, as though they were stocks with, for example, indications of target price ranges and frequent churning recommendations to generate fees.

The industry has long said it will abandon such tactics.

Rijicho: Mr Masami Mizuno

© 2017 Japan Pensions Industry Database/Jo McBride. Reporting on, and analysis of, the secretive business of Japanese institutional investment takes big commitments of money and time. This blog is one of the products of such commitment. It may nonetheless be reproduced or used as a source without charge so long as (but only so long as) the use is credited to www.ijapicap.com and a link provided to the original text on that site.

This blog would not exist without the help and humour of Diane Stormont, 1959-2012


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