The Sun Also Rises Growth Strategies for Japanese Asset Managers(May 2010)
May 01, 2010
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