Japan remains one of the most important markets in Asia for international asset managers. Throughout the 12-month period ending April 2016, Japan saw an inflow of over US$35 billion from active long-term funds, which exclude money market funds as well as ETFs and index funds.
Strategic Insight estimates that over US$200 billion or about 25% of the total industry AUM is sub-advised by mostly international asset managers. Those estimates are based on our Simfund GL database, Morningstar holding data, and our proprietary research, which include only retail funds, but exclude institutional and other investment products.
Japan uses a flexible regulatory structure for financial instrument business. Foreign managers may provide non-discretionary and discretionary investment management services, without registration, to Japanese investment managers that possess investment management licenses. However, on-the-ground presence could facilitate communication and cooperation with local managers and distributors in Japan.
During the first four months of 2016, Real Estate Equity funds investing in overseas securities dominated the best-selling list of active funds that are sub-advised by international managers. The largest five Real Estate Equity funds were among the top ten sellers and collectively took in $5.1 billion in net flows so far this year.
The ongoing shift from a transaction-based commission model to AUM-based “fee-for-service” models and asset allocation “wrap” programs brings more sub-advisory opportunities to both established international managers and new comers.
Since its introduction in 2014, the NISA program has been attracting investment money constantly. Total investments made through NISA reached $69 billion (¥7.7 trillion) in 9.6 million NISA accounts as of March 2016 and the total investment amount through NISA grew by 20.3% over the first quarter this year.
One of the recent developments in the Japanese fund industry is that regional banks are now entering the asset management business to attract more assets, utilizing their wide regional distribution networks, which also provides sub-advisory opportunities to international managers.