Growth Strategies for Japanese Asset Managers（May 2010） | Special Reports

Japanese fund managers can strengthen their competitive positioning at home and abroad by making three key changes in their business models:
-Streamlining mutual fund economics by managing fewer, larger funds
-Reducing home bias focused on domestic securities
-Improving incentive alignment structures
Japan's fund management industry is less profitable than others worldwide, providing 20% operating margins on an asset-weighted basis, compared to 31% in the US and 40% in Europe.
Approximately 80% of Japanese mutual funds do not generate enough fee income to cover operating costs, reflecting a marketplace lacking efficiency in packaging and distribution.
Roughly 45% of Japan's mutual fund revenue goes to pay subadvisors.
Japanese firms have gathered fewer assets from non-Japanese clients in recent years, instead focusing on local institutional accounts with shrinking fees.
Implementing more merit pay and long-term incentives may help boost performance and retain key talent. Nearly 75% of Japanese fund manager compensation is salary, compared to 50% in the US.
A number of strategic enhancements could quickly improve profitability among Japan's fund managers, including:
-A more rigorous product development process
-Expanding product arrays to include regional equity
-Creating better alignment structures for management