Japan: The Time is Now for Asset Managers

October 13, 2022
  • Investor Services
As an outlier in a world of rising interest rates, and as investment behaviour evolves, Japan offers a growing opportunity to Western asset managers eyeing the ¥2,023 trillion* household savings market. BBH’s Japan team shares how they can best access that opportunity.

A gradual shift in investment behavior within a historically conservative Japan is turning it into an increasingly attractive fund distribution market for asset managers as low interest rates channel household savings into long duration investment products with a more sustainable yield.1 Prime Minister Fumio Kishida’s plan to double Japanese people’s income from assets2 and the Bank of Japan’s policy holdfast in June means that isn’t likely to change any time soon.3

Certain factors are further accelerating this growing investment trend, meaning that asset managers looking to expand globally should now make Japan front and center of their strategy. It’s well known however, that Japan is not an easy market to penetrate. Managers who try to go it alone are soon confronted with unique investor expectations, and the administrative burden of setting up shop and registering their funds.  

Here we look at what’s driving the opportunity and share some practical steps that any manager with Japan in their sights should consider.

Understanding the Opportunity

BBH’s experts previously set out opportunities for asset managers4 stemming from changing investment behaviors. These have continued to accelerate since the Covid pandemic:

  • Low interest rates have pushed retail investors to turn to long-term investing and asset diversification via funds, driving assets under management to ¥825trn
  • Younger generations are adapting their preferences from savings to investments thanks to online tools, the NISA5 savings account and social media influencers
  • While the take up of NISA accounts has been gradual, new account openings are finally increasing, thanks to online distributors. Current restrictions will also be abolished as part of Kishida’s “asset income doubling plan”
  • The decline of defined benefit pension (DB) plans and subsequent introduction of individual-type DC pension plans (iDeCo)
  • Japan’s Government Pension Investment Fund (GPIF) and remaining DB pension funds are growing their asset allocations to Western assets and alternative funds
  • Under pressure to overcome asset liability management challenges, trust banks and insurance companies are growing securities investment holdings towards Western assets and alternatives. Many financial institutions, who act as advisors to affluent individuals, are doing the same

Picking the Right Products

Understanding the Japanese manager ecosystem is helpful when considering which types of products to market. For example, managers with an office in Japan and an appropriate license can set up Japan domiciled funds. Non-Japanese domiciled managers may also work with domestic managers to set up Japan-domiciled funds that feed into non-Japanese vehicles.

Managers should also understand the preferred fund products. For example, retail investors favor thematic and differentiated products, while securities firms and banks are emphasizing the higher fee earning discretionary multimanager fund products, notably fund wraps/fund of funds, for wealthier individuals. They tend to seek skilled and/or unique managers to differentiate.

Less experienced local distributors including smaller securities firms and regional banks tend to work with skilled counterparts to introduce more complex products that deliver higher returns, and potentially higher margins.

Making an Entrance

Managers can enter the Japanese investor market in three ways:

1. Set up an office: Managers need a Type I Financial Instruments Business License to set up a local office and distribute offshore funds. However, this option is most challenging, even for Japanese managers, and may not be a realistic first step.  

Alternatively, managers can obtain a Type II Financial Instruments Business License to set up a local office and distribute self-managed offshore funds, including investment trust funds (ITMs) and separately management accounts (SMAs). They should also check if additional specific licenses are required and whether they must clear any operational requirements to manage pension fund assets. Furthermore, a managers’ local office can appoint their offshore entities as sub-advisor to invest these funds.     

Recent government collaborations have eased the application process for Western managers setting up shop and connected them to local firms to accelerate the process given language differences.

2. Set up a joint venture or partnership with Japanese companies: Many Japanese companies rely on Western managers’ investment strategies to diversify their own investment portfolios and product offerings. While some are willing to set up a joint venture, most prefer non-share ownership approaches.

Managers can consider the following options:

  • Partner with a local licensed firm and set up Japanese ITMs. These funds can be invested into the Western manager’s offshore funds, or their local partner can appoint them as sub-advisor to invest the ITM
  • Partner with a local licensed firm and set up SMAs (trust bank account). These funds can be invested into the Western manager’s offshore funds, or their local partner can appoint them as sub-advisor to invest the SMA
  • For the retail market, managers should understand the distributors sector to choose or be chosen by suitable distribution partners

3. “Fly in, fly out”: Possible for private placements only and involves fewer initial costs and commitment. However, identifying initial communication opportunities and developing deeper relationships where local language in needed is more challenging than being on the ground.

Understanding the Target Market

Institutions: The key players in this segment include corporate groups comprising a range of financial companies, quasi-government institutions, and specialist banks and regional banks. Insurers are also key institutional players. While some of them may belong to financial groups, many have autonomy over their investment decisions. In addition, while not adopted in Japan yet, many insurers are trying to align with their interpretation of the Solvency II risk-based capital regime.

Retail: Managers may need to set up an office or identify trusted local partners to assist with the requisite translation of documents into Japanese and a Japanese speaking helpdesk. They can set up standalone local funds or feeder funds. Alternatively, managers can set up Japan-domiciled fund of funds to invest in their existing funds and money market fund to pool remaining cash.

Pensions: Managers may need to work with Japanese managers to compliment an existing product or service offering. Large funds such as GPIF employ a manager registration system, while a few other large Japanese national pension funds and a limited number of large corporate pension funds have their own investment selection teams. Most other pension funds outsource this function to trust banks and insurers, many of whom have offices overseas.


Local managers have external manager selection teams for both retail and institutional investor segments. Trust banks and insurers are acting for institutional investors as “gatekeepers” and have the final say on fund selection. Consultant and advisory firms also play key roles for fund rating and selection for retail, pension segments or both. Overseas offices of those entities can facilitate the initial process of putting Western managers’ funds on their candidate (monitoring) list. Thereafter, managers who continue engaging such Japanese allocators, including sending monthly reports may gain a conversation with the Japan-based investment committee. An understanding of the Japanese manager ecosystem is therefore also helpful in deciding on a distribution strategy and who to collaborate with.

This image shows a map of Japan and highlights the key players in the three target sectors: Institutional, Retail and Pensions. The Institutional Sector includes commercial/investment banks, trust banks, quasi-government financial institutions, specialist banks, large regional banks and insurers. Next, the Retail Sector includes asset managers (including asset management units or some institutional players), securities firms who distribute funds including standalone funds, ISAs and fund wraps, insurers creating pension insurance products and consultants/advisors who can influence their securities firm parent's fund selection. Lastly, the image shows the Pensions Sector which includes trust banks who are fund selectors and gate keepers for pensions and less sophisticated institutional investors, fund rating agencies and fund consulting firms who provide asset management and advisory services to institutional investors, law/accounting/consulting firms and insurers.  

How BBH Can Help

We provide knowledge and expertise of the Japanese market to assist Western managers, providing insight in areas such as:

  • Fund structure  
  • Operating model development and follow the sun processing and servicing to account for the time differences
  • Understanding the Japanese financial services ecosystem and players 
  • Insight exchange opportunities between European-based managers and European-based Japanese trust bank/asset managers   
  • Sharing insights gained on funds aimed at Japanese investors.

While the Japanese market is a complex one and requires long term commitment and investment, the potential opportunities could be well worth the effort. By pivoting service models, providing global investment opportunities within a local framework, and working collaboratively with the local ecosystem, managers can put themselves in the best position to take full advantage of the future opportunities in Japan. Working with global service providers, such as BBH, to provide the knowledge and expertise managers need to get ahead in this unique market.

For more information, please contact Tomoko Kenny or your local BBH representative and follow BBH Market Insights on LinkedIn for our latest insights.

A photo of Nan Lian Garden in Hong Kong
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* https://thelawreviews.co.uk/title/the-asset-management-review/japan
2 https://japan.kantei.go.jp/101_kishida/statement/202205/_00002.html
BBH latest FX quarterly outlook
Japan: A New Dawn for Asset Managers
NISA, or Nippon Individual Savings Accounts is a tax exemption scheme for small investments

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