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Japanese fund managers need structural overhaul
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Japan’s fund management sector needs to make significant changes to attract more clients and become more competitive, according to a white paper jointly produced by management consulting firm Casey, Quirk and Associates and the Nomura Research Institute (NRI).
The white paper, titled The Sun Also Rises, recommends that the sector develop attractive products based on faster growing Asian economies, shift to a more incentive-based compensation structure and lift profit margins to global industry levels.
About 80 per cent of Japanese mutual funds generate insufficient fee revenue to cover costs, while their reliance on domestic products means they are shut out of global growth opportunities, the paper found.
Profit margins for Japanese fund managers are about 20 per cent, compared to 30 per cent in the US and almost 40 per cent in Europe, the consultancies found.
Their salary-driven compensation structure is also inflexible. Compensation as a percentage of total expenses rose during the global financial crisis despite falling revenue, compared to the US where compensation fell relative to total expenses.
“Changing the compensation culture is vital for Japan’s fund managers to attract and retain key talent necessary to upgrade the investment and product development process,” said Sadayuki Horie, senior researcher at NRI.
“That, in turn, would allow the firms to introduce Asian region equity products that would attract Japanese and international investors.”
The paper was based on data from more than 100 Japanese asset management firms and nearly 70 fund managers in the US, Canada and Europe.
AUTHOR
Mike Taylor
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