Japan's Asset Management Business Sees Slow Growth

January 3, 2006 (PLANSPONSOR.com) - The sluggish growth of Japan's asset management industry is partly due to the reticence of a large number of public pension funds to use actively managed securities, according to a recent report by a Boston-based consultant.

The country’s Government Pension Investment Fund has $605.9 billion of its $1.26 trillion assets invested in the markets, but about half of that is invested in government bonds, according to a press release  from Cerulli Associates. The tendency of large public funds to steer clear of investment vehicles deemed too risky has left the country trailing behind its other Asia counterparts, with Japan ranking as the slowest growing asset management marketplace in the Asia-Pacific region, according to Cerulli.

Cerulli also predicted that the collapse of US hedge fund giant Amaranth Advisors may deter Japanese pension funds as well from using hedge fund strategies (See  San Diego Retirement Fund to Feel Hit from Hedge Fund Collapse ).

The consultant also found that while the assets of Japan’s corporate defined contribution plans have increasingly become a “fertile hunting ground” for fund managers in the country, defined benefit plans are on the decline.   A November report by Greenwich Associates revealed that even though DB plans are falling out of favor with many employers, they boast a relatively healthy 96% funded rate (See Average Japanese Pension Fund 96% Funded ).

The Greenwich Associates report also showed that the number of DC plan increased from 16% in 2005 to 20% in 2006.   According to the Cerulli news release, DC plans have also gotten a boost from rules that have allowed for raising contributions by 27%.