New leadership at BGI Japan considers expansion

Yasuchika Asaoka, the recently appointed president at Barclays Global Investors Japan, says his challenge is to take a market-leading position managing pension assets and diversify that, as Japan's asset management industry continues its new and rapid evolution.

This may include forging new relationships with local firms with distribution power, broadening the clientele to include more financial institutions or retail investors, and enhancing capability in areas such as domestic fixed income, he says.

Asaoka joined BGI Japan in March as an advisor to its trust bank (run by former Merrill Lynch Investment Managers veteran David Semaya) and assuming the presidency on April 1, taking over from the long-serving CEO Kazuhisa Okamoto. Previously, Asaoka served as executive director at the Y11 trillion ($91 billion) Pension Fund Association, one of Japan's most influential institutional investors.

Although BGI's place as a manager of Japanese pension money is assured, the market has changed. The corporate market has shrunk from Y60 trillion to around Y50 trillion. BGI is a major player in the growing government pension market, particularly given its passive expertise so valued by the likes of the PFA, but this is a low-fee universe and competition is intense. Five years ago, pensions represented the only game in town. But the industry has diversified and industry players agree that the best opportunities are to be found in areas such as retail mutual funds or selling to institutions such as life insurance companies, where the battle for dominance remains to be won.

Many foreign fund houses have therefore teamed up with local trust banks to provide high-margin global products through a local network. Asaoka does not say BGI will go down the same path, but acknowledges he is looking at options to create local partnerships to achieve a similar result.

Three years ago, BGI made an initial stab at the Japanese retail space by being among a handful of providers, along with the likes of Nomura, Nikko and Daiwa SB, to launch exchange-traded funds. The market failed to excite, however, and BGI subsequently pulled back. Asaoka says he would like to find ways to revive this sort of initiative - preferably with the help of a distribution partner.

Although Asaoka admits that BGI is a latecomer in this regard, he believes the firm is better suited than many asset managers to compete. In the pensions space, he sees the global trend toward defined contribution - and a general desire by companies and individuals to pass risk and responsibility elsewhere - has led to demand for structured products. This could be capital-guaranteed funds for DC members, or risk-controlled structures for financial institutions. This has allowed investment banks to intrude into traditional fund manager arenas.

Although BGI has active management capabilities aimed at finding alpha, its bread and butter has been highly controlled strategies that control risk, such as enhanced-index funds, that deliver high information ratios. Asaoka says BGI is able to meet investor needs to invest in low-volatility ways without the hidden costs or complexity of a structured note.

The firm is also pushing its alpha-generating side, he says, noting that currently BGI Japan is building its domestic fixed-income team under CIO Ross Hikida. The firm realizes that Japanese interest rates will eventually rise, and even a modest up-tick will create demand for domestic bonds. The team is upgrading its capabilities in government bonds, credit, high yield and alternative fixed-income strategies. It now has five domestic bond managers and plans to hire more.

Asaoka notes that this means taking on the local trust banks head-on. Such a strategy would have been impossible just a few years ago, given BGI's quant focus, because the local brokers kept most bond market data to themselves. Competition has opened this up, allowing independent asset firms such as BGI access to price and trading information, thus reducing the problem of 'garbage in, garbage out' systems. Now the firm has established a market database and is able to build active and quant bond capabilities.