The more challenging the market, the higher our standards.

It is an exciting time to be an asset management firm in Japan.

Since 1998, the Japanese government has taken measured steps to deregulate the mutual fund industry. As it stands now, mutual funds account for a mere 5% of the nation’s over ¥1,500 trillion in household assets.1 However, in the last few years, the mind-set of Japanese investors has changed dramatically; investors today have a far higher tolerance for risk than before. In 2003, the vast majority of mutual fund products sold by banks were fixed-income-based; now the most popular products are multi-asset funds. Alternative products, such as REITs and hedge funds, and emerging market funds are also gaining popularity.

Restructuring and retooling our in-house investment process

Nikko Asset Management has evolved quickly in response to these attractive industry dynamics. In 2004, we embarked on a major restructuring effort to realign our in-house investment process around one unifying principle: maximizing the performance of our products. Key changes include:

  • Employee stock ownership program
    We established an employee stock ownership program and tied a significant portion of the investment professionals’ remuneration directly to investment performance.
  • Improved risk management
    We devised a multi-tier risk management system involving fund managers, a fund analysis group, an in-house legal/compliance function and a risk management group.
  • New accountability
    We streamlined the structure of the investment team and clarified responsibilities, assigning one fund manager to each fund.
  • Increased cooperation
    We reconfigured the research department to strengthen cooperation between fund managers and analysts.
  • More focused research
    Our research department is no longer evaluated by the volume of research done but by the contribution to fund performance. Our analyst team is now composed of specialists for different investment styles, such as value and mid-small cap, as well as sector analysts.

Our investment teams comprise industry professionals, many with over 10 years2 of asset management experience. We are also supplementing our deep bench of Japanese investment professionals with regional specialists in Singapore, London and New York. Investment performance has clearly turned around. The majority of our funds were in the top quartile of relevant category rankings in terms of investment performance in fiscal 2005.3

1 Source: Nikko Asset Management. Calculation based on data from Bank of Japan and The Investment Trusts Association, Japan.
2 As of end of June 2006. Figure includes analysts.
3 Source: Nikko Financial Intelligence, Nikko AM Analysis. Figures are based on the number of funds.

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