Asset Management One (AMO) is perhaps the largest global asset manager that IPE readers have never heard of. Its ¥52.75trn (€430bn) in assets under management would put it just outside the world’s top 30 if it was ranked in IPE’s top 400 asset manager survey for 2016. Its range of investment products include fundamental equity strategies, fixed income, exchange-traded funds, quantitative management, multi-asset, real estate investment trusts and asset-liability management.
It is the largest manager of Japanese public pension assets. In particular, it has a mandate to manage a share of the assets of Japan’s giant Government Pension Investment Fund. Overseas, AMO has some reach with its expertise in managing pension products for international investors.
There are three reasons why, so far at least, the Japanese asset manager is not well known in Europe. First, it is a new entity. It was launched in October 2016 as the result of the merger of four smaller Japanese businesses: DIAM, Mizuho Asset Management, Shinko Asset Management and the asset management division of Mizuho Trust & Banking. Clearly with the passage of time it would expect to become better known.
Second, for the time being, it seems shy. Although it says it has global strategic partnerships with other asset management groups, it declines to name them. That could, of course, be because its partners do not want to be identified. In any event, its approach seems to be towards the quiet and considered end of the spectrum, rather than the extravert and loud.
Finally, and most importantly, its European presence has been largely confined to a niche role as a specialist manager of Japanese equities and other classes. That is despite its extensive range of capabilities not only in Japan but elsewhere. It has offices in Hong Kong, Singapore, New York and London and a wide range of capabilities in international assets. For example, its coverage of fixed income is global and its real estate investment trusts offer investments in global and US as well as Japanese products.
It is the responsibility of Hajime Fukuzawa, the head of the firm’s global business, to raise AMO’s international profile. “Expanding our global business is key to the future growth strategy of our company,” he says.
In his view, Japan’s declining population and slow economic growth creates incentives for it to increase its international presence. Asia is perhaps the obvious area for expansion but it has its challenges. “Although it has high growth potential it is a highly segmented market”. Success in one Asian country does not guarantee success in another.
For that reason, the US and Asia are also seen as important areas for expansion. AMO confirms that it has plans for expansion in Europe, but it is reluctant to reveal much detail. All it will say is that it will further deploy risk parity and similar strategies.
To understand AMO and indeed the Japanese financial sector, it helps to go back in time. History has given Japanese financial institutions a particular character.
A good place to start is 1989. It is hard for those who did not experience it to remember but back then Japanese institutions were considered to be on the verge of global domination. Among the biggest names were Dai-Ichi Kangyo (DKB), Fuji and the Industrial Bank of Japan (IBJ). Many even expected Japan to take over from the US as the world’s pre-eminent power by the early twenty-first century.
With the benefit of hindsight it is clear that such predictions did not materialise, but it is worth reflecting on the experience. Japanese financial institutions became inflated in what became known as the bubble economy (baburu keiki). Cheap credit pushed land and equity prices to stratospheric levels. The Nikkei 225 stock market index reached about 39,000 at the end of 1989 compared with about 19,000 now. It was reported that the grounds of the Imperial Palace in central Tokyo were worth the same as the entire state of California.
When the bubble burst at the start of the 1990s, it created devastation among Japanese financial institutions. For example, land that was used as collateral against bad debt suddenly lost its value. It has taken years for the Japanese financial sector to recover from such a terrible shock.
But the collapse of baburu keiki is only part of the story. Back in the 1980s, Japan had a highly segmented financial system with a strict division between securities houses and commercial banks. There were also specialist institutions such as trust banks which offered specialist investment services including asset management.
This was a legacy of the US occupation of Japan that followed the Second World War. Article 65 of the Japanese Securities and Exchange Law of 1948 was based on the American Glass-Steagall legislation of 1933 (itself later repealed in 1999). The idea was that keeping commercial banking and securities trading separate was prudent. It was a reaction to the 1929 Wall Street crash when many banks had lent customers money to trade in equities.
This then is the legacy that the founders of AMO had to overcome to create itself. Hajime Fukuzawa makes the point that “this entity could not exist under the old system of regulation”. The wide range of services offered would not have been possible under the old fragmented arrangement.
In addition, many names from the past can be traced to AMO’s parentage. Mizuho Financial, its majority shareholder, is part of a group that incorporated DKB, Fuji and IBJ banks. Fukuzawa himself was an employee of IBJ.
By coincidence, he also saw the start of the global financial crisis up close. Mizuho Corporate Bank posted him to New York for three years in April 2008. It was just after the collapse of Bear Stearns and a few months prior to the fall of Lehman Brothers. “Everything was changing dramatically,” he says.
Against the difficult Japanese background, it should be clear that AMO represents a conscious lesson to learn from the past. For example, the group values its autonomy from its parent company. “The reason we didn’t use the Mizuho name is that we wanted to demonstrate we are very independent,” says Fukuzawa.
There is also an emphasis on good corporate governance. “This is very important to avoid conflicts of interest between us and our shareholders,” he says. Three out of five of the directors on its audit and supervisory committee are external.
It will take time to gauge whether AMO is a success in the global arena and particularly in Europe. The asset manager will need to move from its niche as a specialist manager of Japanese assets to a provider of a wider range of asset management services. If it achieves this objective, its name will be much more widely recognised in Europe than it is now.With