G O R D I A N C A P I TA L
Japan ripe for institutional asset raising Interview with Alvaro Tamura What are some of the recent developments in the asset management business in Tokyo and what is the outlook? The Covid-19 pandemic has slowed activities in 2020 but it is likely that some of the asset management trends that began around 2017 remain in place given the underlying factors driving those trends. One exciting trend has been the steady number of Japan-based hedge funds being launched by managers with pedigree, track records, and assets to sustain them during the startup phase of their funds. The new Japan-based funds have strategies covering equity long/short, activism, global macro, preIPO, venture capital and real estate, among others. The establishment of a trading base in Tokyo by large platforms has helped train a new generation of traders. There is now a critical mass of risk-taking activity taking place in Tokyo away from the traditional sell-side trading. More importantly, the new breed of traders appears to value the home-field advantage and the quality of life that Tokyo provides. The personal tax benefits of launching a fund in a more tax-friendly jurisdiction is not necessarily the determinant factor of where to launch a fund. Another trend has been the establishment of offices by large offshore asset managers for investor servicing, deal origination, and fund raising. The ecosystem to support the new level of activity continues to grow with new service providers opening offices in Tokyo. Contrary to this rose-coloured view of the industry, an immutable fact has been the lengthy process for obtaining an investment-manager license. The requirement 6
to be fully staffed at the time of application for the license translates into high setup and carrying costs. That said, specialised firms, such as Gordian Capital Japan, part of the Gordian Capital group with USD5.3 billion AUM across its fund platform, offer fund platform solutions to GPs and managers, that significantly reduces time, cost and uncertainties of establishing a regulated base to house key investment professionals on the ground. Importantly, Gordian Capital Japan does not manage either proprietary or third-party capital, thus eliminating a clear potential conflict of interest. What are the main opportunities and challenges for managers based outside of Japan when raising funds from Japanese institutional investors, in particular in relation to pension funds? For managers seeking to raise assets from Japanese institutional investors, the opportunities are enormous. For example, the size of the pension fund market alone, is approximately 338 trillion yen (USD3.11 trillion), of that, public pension funds including GPIF are 226 trillion yen (USD2.08 trillion) and corporate pension funds are 112 trillion yen (USD1.03 trillion). Of the latter, the market size for defined benefit pensions is 78 trillion yen (USD718 billion). The pension fund managers are dealing with not only the impact of low interest rates but with a rapidly aging population seeking to retire and a dearth of onshore investment opportunities. More specifically, for over 70 per cent of the defined benefit pension funds, the target returns sought by the pension funds are in the range of 2.5 to 3 per cent while 10-yr government bonds yield around zero. As a result, the need for incremental additional TOKYO FUND SERVICES IN FOCUS | Dec 2020
