As Japan's population agesand shrinks, expectations are that assets held by pensions funds will decreaseover time. Thus Japanese individuals will face the risk of declining pensions payments,which means it makes little sense for them to stick to hoarding cash, andshould instead invest their assets.
An asset management jointventure between Mizuho FinancialGroup Inc. and Dai-ichi Life Insurance Co. Ltd. is looking to tap theroughly ¥1,700 trillion worth of wealth held by Japanese individuals. Thecompany, Asset Management One, has begun operations Oct. 3 and will controlabout ¥52 trillion worth of assets. It will number among the largest assetmanagers in Asia.
Nobuhiko Hoga, senior vicepresident of asset management coordination at Mizuho, spoke with S&P GlobalMarket Intelligence in Tokyo about Asset Management One's strategy.
The following is an editedtranscript of the interview, which was conducted in Japanese.
S&P Global MarketIntelligence: Tell us about Asset Management One.
Nobuhiko Hoga: The venture was created fromthe integration of four asset management subsidiaries and affiliates of Mizuhoand Dai-ichi. It controls about ¥52 trillion worth of assets as of March 31.Roughly a quarter of that comes from individual investors, while 52% comes frompublic pension funds, 17% from corporate pension funds and the reminder fromother institutional investors.
Is there a growth target forthe company?
Weaim to raise the size of assets under control to about ¥59 trillion by March31, 2019.
What is the customer basefocus for the company?
Aren't institutionalinvestors more profitable in general?
Institutionalinvestors are important, but Japanese individuals are our primary focus as theyhave not invested much of their assets, which means there is great potential tobe found in that sector. The volume of assets held by Japanese pension fundswill decrease as the country's population ages, though this is a gradualprocess.
Japanese people are notoriousfor their strong attachment to cash. More than half of their ¥1,700 trillion inassets is held as cash despite prolonged ultralow rates in the country. Howwould Asset Management One persuade them to invest?
Bankdeposits would produce almost nothing under the current environment. But thecompany is not looking to persuade individuals to invest all of their cash. Thetotal amount is so big that even a small fraction can make a big difference.
There are many regional bankslooking to tap Japanese individuals' assets as well. They have very strong,in-person relationships with rich individuals in areas where they operate. Howwould the venture compete?
AssetManagement One will not compete with regional banks, as they will sell itsfinancial products to individuals. The company will also sell investment fundsto individuals through online securities brokers. Even if the company onlyattracts a few percent of that total amount of assets held by individuals, itwould be a huge success. That would be the first step. Then, there are pensionfunds. Although their total assets will decline over time, they would likelyswitch asset managers if they see better performance.
Are there specific assetclasses the venture will be interested in?
Japanesestocks. That market is deep, and the venture can take full advantage of itsexpertise. We have also enhanced real estate products such as REITs. A U.S. REITfund was a recent hit with customers.
Generally speaking, Japaneseindividuals do not know much about how stock, currency and bond markets work.Will it be hard to deal with their complaints if these markets don't move asexpected?
Thepotential of the market is too big to ignore. The important thing is to explainabout the products and their risks over and over until they understand.
Is the venture looking atpotential customers overseas?
AssetManagement One is very interested in pension funds in the U.S. and Europe, andin sovereign wealth funds in the Middle East. At this point, we have a verysmall amount of trustees overseas, so this would take time.
As of Sept. 30, US$1 wasequivalent to ¥101.24.