Asset Management

Times are challenging for the asset management industry and for its clients. This is due not only to the COVID-19 virus, but also to some specific issues related to the development of long-term investing.

In early June 2019, the Japanese Financial Services Agency (FSA) released a report on the future financial security of senior citizens (we have to be prepared to live for 100 years!). In this report, some simulation suggested that the “average” retired couple would need an additional 20 million yen to bridge the gap between their combined savings and pension benefits on one hand and their actual needs on the other hand. Due to the highly politically-sensitive nature of this simulation result, the full report was ultimately rejected by the Japanese Ministry of Finance (MOF). However, the “20 million yen” gap generated a lot of media coverage and therefore interest from the general public on the importance of building financial savings with a long-term perspective.

Meanwhile the Japanese retail fund market did shrink in 2019. The shift from deposits to higher-return instruments is not happening, deposits continue to balloon in banks, and banks have been losing market share against securities firms on mutual fund sales to individuals.

The revision of the Foreign Exchange and Foreign Trade Law was announced mid-2019, regarding prior notification for foreign investments in business sectors related to national security. It initially created serious concerns in the financial community. The first draft of the revision could be seen as discriminatory against foreign-affiliated financial firms, including asset management companies, and from an operational point of view was unpractical as the scope of the law would be expanded dramatically with the threshold being lowered from 10% to 1%. Welcomed clarification and exemptions were provided in October 2019, and detailed implementation is still being debated (public comments being called until April 2020). The EBC Asset Management Committee continues to follow this issue very closely. At the same time, we do want to express our gratitude to the MOF for its willingness to communicate and listen to the views of the EBC. Recent drafts have been received far more positively by the industry.

Geopolitics, natural disasters and now early 2020 the Coronavirus pandemic further contribute to darken the landscape. While we are fully aware of the challenges, both current and future, we believe that it is important that the authorities provide guidance in particular to the continued move for a higher degree of digitalisation, and the possibility for remote work.

Still, it should not be time for capitulation, it should be time for action: even more than before, the asset management industry needs to achieve its mission of bridging the need of the real economy with a pool of savings, by delivering appropriate solutions to meet the diverse needs of all segments of the investment community. This in particular, including individuals who are new to fund investing.

In that regard, Environmental, Social and Governance (ESG) and Sustainable Development Goals (SDGs) remain a highly discussed topic in Japan. More public and private initiatives are expected to demonstrate that the investment community can contribute to develop a sustainable economy and that such approach can have positive impact on financial returns. European leadership is well recognised and EBC members are keen to contribute to those developments in Japan.

Key issues and recommendations

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