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No. 355, April 1999

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American Companies in Japan


FINANCIAL SERVICES

The rush of American money managers into Japan is taking on stampede- like characteristics. Among the latest companies hoping to serve the nation's big institutional investment market or to tap into its vast pool of personal savings or both is BLACKROCK, INC. The New York City asset management arm of PNC BANK CORP. is forming an equally owned venture with NOMURA ASSET MANAGEMENT CO., LTD. to develop and distribute U.S. investment-grade fixed-income asset management services and investment trusts (Japanese-style mutual funds). Tokyo-based NOMURA BLACKROCK ASSET MANAGEMENT CO., LTD. expects to operational by July 1. It represents the first transpacific pairing of asset management companies. However, Nomura Asset Management, Japan's top asset manager with $128.3 billion in its hands as of last December, and BlackRock, which managed $131 billion at yearend 1998, are not strangers. Since 1997, they have codeveloped and marketed three investment trusts for Japanese investors, attracting investments of approximately $1.3 billion.

Other arrangements give American investment managers already in Japan access to a broader range of investors. Such is true of FRANK RUSSELL CO.'s alliance with BANK OF TOKYO-MITSUBISHI, LTD. in the investment trust business. The Tacoma, Washington-headquartered subsidiary of NORTHWESTERN MUTUAL LIFE INSURANCE CO., which has more than $40 billion in assets under management, specializes in what are called multimanager funds. These funds provide a complementary mix of money managers, which can enhance diversification and reduce risk — a potentially key selling point for Japan's legions of novice individual investors. BTM, the country's biggest bank, will distribute the funds, tailoring portfolios to its clients' investment objectives and risk tolerance. Frank Russell will provide the underlying multimanager investment products for the program, which is scheduled for launch in the summer.

Boston's LPL FINANCIAL SERVICES, which bills itself as the leading independent brokerage firm in the United States with no proprietary investment products, reportedly is exploring the possibility of moving into Japan. If it does, informed sources say that the company will contract initially with some 250 independent financial planners to sell anywhere between 100 and 200 investment trust products starting in the latter part of 1999.

DAI-ICHI KANGYO J.P. MORGAN INVESTMENT MANAGEMENT CO., LTD. will begin operations in May. One of the first transpacific alliances to be announced (see Japan-U.S. Business Report No. 350, November 1998, p. 17), the equally owned Tokyo company brings together J.P. MORGAN INVESTMENT MANAGEMENT, INC., the investment management unit of bank holding company J.P. MORGAN & CO., INC., and the DAI-ICHI KANGYO ASAHI ASSET MANAGEMENT CO., LTD. subsidiary of DAI-ICHI KANGYO BANK, LTD. The new venture will draw on J.P. Morgan Investment Management's global financial management expertise and technology, the domestic asset management know-how of its partner and the broad customer base of DKB to develop and market cobranded investment trust products to retail investors.

Extending an existing relationship, HIGHMARK CAPITAL MANAGEMENT, INC. will help to manage the U.S. equities making up an investment trust that TOKYO-MITSUBISHI ASSET MANAGEMENT, LTD. will offer to clients. The Los Angeles company, which manages money for institutional investors and high net-worth individuals, already advises TMAM on U.S. equity allocations for its pension-fund investments. HighMark Capital Management is a wholly owned subsidiary of UNIONBANCAL CORP. The latter, in turn, is majority-owned by BANK OF TOKYO-MITSUBISHI, LTD. (see Japan-U.S. Business Report No. 354, March 1999, p. 6).

The expertise that STATE STREET BANK & TRUST CO. has developed in managing 401(k) pension plans in the United States will be available to a company that a consortium of Japanese financial institutions plans to set up to manage defined-contribution pension plans when Tokyo allows this type of retirement vehicle, most likely in FY 2000. The Boston- headquartered bank originally expected to tie up on 401(k)-style plans with SAKURA BANK, LTD. and three other financial institutions belonging to the Mitsui Group. However, these firms decided to join a defined- contribution pension business being organized by INDUSTRIAL BANK OF JAPAN, LTD. and NOMURA SECURITIES CO., LTD. State Street has opted to follow suit.

Confident or adventuresome Japanese investors will be able to trade on- line starting in mid-June. That is when DLJDIRECT SFG SECURITIES INC. will begin operations (see Japan-U.S. Business Report No. 351, December 1998, p. 16). Owned by DLJDIRECT INC. (50 percent), the on-line brokerage subsidiary of DONALDSON, LUFKIN & JENRETTE INC., SUMITOMO BANK, LTD. (30 percent) and six other companies with which the Japanese commercial bank has ties, the joint venture initially will offer Internet trading of stocks listed on the Tokyo and Osaka Stock Exchanges, over-the-counter stocks and money market funds. Mutual funds and access to American and European markets will be available in the future, as will a broader range of research and other background information. DLJdirect SFG will charge no fees to open an account. OTC commissions will be discounted 60 percent. Commissions on other trades will be competitive with those charged by the rest of the industry when these fees are deregulated in the fall.

Japan's number-three securities house is among the other companies that are eyeing the on-line brokerage business. NIKKO SECURITIES CO., LTD. is in talks with ADVISORTECH CORP., a San Francisco-based start-up that provides back-office support for Internet trading, to form a company in the fall. As currently envisioned, the joint venture initially would offer trading in about 100 domestic stocks and investment trusts. It also would provide real-time stock quotes and investment trust ratings.

Convinced that Japan offers some extremely attractive investment opportunities, venture capitalist E.M. WARBURG, PINCUS & CO. expects to invest as much as $1 billion in 10 to 15 Japanese companies over the next three to five years. The targets span start-ups raising money and publicly traded companies in need of capital. By taking an active role in the management of the companies in which it invests, the Manhattan firm hopes to generate an average annual rate of 30 percent of so.

Another New York City-based venture capital firm sees money to be made by buying businesses from restructuring Japanese companies. PATRICOF & CO. VENTURES, INC. has joined forces with fellow independent venture capitalist GLOBIS CORP. of Tokyo to form APAX GLOBIS PARTNERS to participate in the buyout market that is emerging in Japan. The joint venture already is raising money from investors in Japan with the goal of having $125 million on hand at the start. At the same time, it is searching for companies in which to invest.

For a reported $105 million, YASUDA FIRE & MARINE INSURANCE CO., LTD. increased its stake in INA HIMAWARI LIFE INSURANCE CO., LTD. to 39 percent from the 10 percent that it had owned since 1993. CIGNA CORP. remains the majority owner of its life insurance subsidiary. The two companies described the transaction as a way to further strengthen their longtime relationship. CIGNA spokespeople added that the big Philadelphia employee benefits organization is committed to expanding its presence in Japan's life insurance market. Late last year, CIGNA and Yasuda Fire & Marine announced their intention to set up an equally owned company this spring to market pension and investment products (see Japan-U.S. Business Report No. 352, January 1999, p. 15).

In June, CHIYODA MUTUAL LIFE INSURANCE CO. will set up a company to market UNUM CORP.'s long-term disability policies to corporate Japan along with its own life insurance products. The struggling insurer reportedly will receive half of the premium income from the sale of the Portland, Maine company's polices to businesses. Chiyoda Mutual Life's huge sales force will continue to market Unum's income-indemnity products to individual customers. The two insurers announced a tie-up in the spring of 1998 (see Japan-U.S. Business Report No. 344, May 1998, p. 14).

Going solo for the first time in Japan, ALLSTATE INSURANCE CO. is selling car insurance in Miyagi prefecture. Until November 1997, the big property and casualty insurer had a joint venture with the Seibu Group that sold nonlife products. It formed its own operation in early 1998. Rather than open an office in Mi-yagi, ALLSTATE PROPERTY AND CASUALTY INSURANCE JAPAN CO., LTD. is marketing the automobile policies by phone, discounting premiums by as much as 40 percent from what its competitors charge.

The New York Stock Exchange has opened an office in Tokyo, its first in Asia and just its second overseas. A primary reason for the move is to encourage more companies in Japan and elsewhere in Asia to list their shares on the Big Board. At virtually the same time, NYSE officials said that the exchange would form a working group with a threatened Tokyo Stock Exchange to explore how the two could bolster their long relationship. Within days of these announcements, the Chicago Board of Trade disclosed that it would close its Asian Pacific regional office in Tokyo at the end of May. The office was opened in 1987. Spokespeople linked the decision to the CBOT's own restructuring efforts and to the conclusion that Japanese investments in the financial and commodity futures traded on the board had leveled off.

An exchange rate of ¥120=$1.00 was used in this report.aaaaaa

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