March 19, 2024 — Traditional asset managers could face an increasingly challenging marketplace in Japan as asset owners slow expectations for manager hiring and shift allocations in the direction of alternative and private assets. 

Approximately 40% of Japanese pension funds, endowments and foundations report plans to hire a new asset manager in the next 12 months. That share is down from roughly 50% in 2022. Among Japanese financial institutions, hiring expectations dipped to 41% in 2023 from 43% in 2022.

“In an environment of limited opportunities for growth, asset managers should be concentrating more attention and resources to deepening and preserving existing relationships,” says Seiji Ishii, Head of Investment Management – Japan at Coalition Greenwich and co-author of Japanese Investment Management: An Emphasis on Deeper Client Relationships. “Meanwhile, asset owners should be leveraging increased competition for investment mandates to upgrade the service and support they receive from their managers.”

Shift to Private Equity and Debt Strategies
Compounding the pressure on traditional managers is asset owners’ ongoing embrace of private assets. Japanese asset owners are joining their counterparts in other markets in their plans to increase the share of their overall assets under management (AUM) devoted to alternative investments and private assets. For example, almost 40% of Japanese financial institutions plan to increase target allocations to private debt over the next three years, and 1 in 5 plan to significantly increase allocations to private equity. The trends are similar among Japanese pension funds, endowments and foundations. 

“Until recently, Japanese asset owners in search of alternative exposures tended to favor hedge funds, which offer more liquidity than other alternative asset classes, as their primary vehicle,” says Seijii Ishii. “But the increased emphasis on private equity and debt strategies is already having an impact on hiring plans.”

Japanese Investment Management: An Emphasis on Deeper Client Relationships analyzes the competitive dynamics of the Japanese asset management industry and presents recommendations to benefit both asset owners and managers in a fast-changing marketplace, including a focus on “service alpha” and strategic partnerships.