The role of asset managers in Japan and beyond will need to change in coming years in order to meet the needs of an increasingly sophisticated investor base, and in line with societal changes, according to Kei Sano, president and chief executive officer of Daiwa Asset Management.
He foresees “four particularly important trends” unfolding in Japan over the new few years: the ongoing shift from savings to investment; growing retail demand for long-term asset building; stronger emphasis on client-centric practices, including product governance for investment funds; and reorganisation of outsourcing and external management arrangements.
As a result, “asset management companies will increasingly be expected to move beyond their traditional role as product providers. Instead, they will need to design investment solutions by working backward from clients’ objectives, such as retirement planning, inflation resilience, and extending the longevity of assets”, Sano says in an exclusive interview with Asia Asset Management.
“In addition, on the institutional side, asset owners themselves are becoming more sophisticated. This will raise expectations for flexible and advanced investment solutions, including the effective use of alternative assets.”
According to Sano, the influx of first-time investors continues and demand for index products remains “solid”.
“At the same time, active funds are becoming more selective, with investor interest concentrating on strategies that offer clearly identifiable alpha or distinctive product features,” he says.
“Among mass-affluent and higher-net-worth investors, investment objectives are becoming clearer at the total portfolio level. As a result, demand for solution-oriented approaches such as fund wrap programmes and goal-based asset allocation is expanding.”
Sano notes that in the exchange-traded fund space, demand is currently centred on index products. “However, we expect thematic and active ETFs to grow, with some potential to substitute for traditional mutual funds over time.”
“Overall, as the number of investors increases and financial literacy improves, asset managers will be required to strengthen not only product offerings, but also their ability to provide integrated investment solutions,” he adds.
Consolidation
On the institutional side, Sano observes that the Asset Owner Principles formulated by the government in 2024 are “driving a shift towards more holistic evaluation criteria”.
“Asset managers are increasingly assessed not only on performance, but also on investment philosophy, risk management, organisational structure, and human capital.”
He also sees a growing role for outsourced chief investment officer or OCIO models. “Asset owners are becoming increasingly polarised between those that are highly sophisticated and those that rely more heavily on OCIO services. In either case, expectations for asset managers are rising.”
These trends will probably lead to some rationalisation and reduction in the number of investment institutions managing financial assets.
Sano acknowledges that “we do expect a certain degree of consolidation, especially in areas where differentiation in investment performance is difficult, such as broad index strategies or highly similar active strategies – scale and cost efficiency will become decisive competitive factors”.
But he does not foresee a blanket consolidation. “Rather, the landscape is likely to polarise between players that succeed through scale and cost leadership, and more specialised firms that demonstrate strong expertise in specific asset classes or investment strategies.”
While diversity in core investment capabilities is likely to remain, “we expect increasing standardisation and outsourcing in areas such as middle- and back-office functions, IT infrastructure, and product structuring. As these functions are increasingly shared or externalised, the overall number of institutions is likely to decline as a natural outcome”.
At the same time, he points out that the division of roles between in-house management and external managers is becoming clearer. “External mandates are increasingly focused on areas requiring higher levels of specialisation and expertise.”
Positioned for changes
Daiwa Asset Management is taking steps to position itself for these changes.
“Our strategy is built around three core pillars,” Sano explains. “Supporting long-term asset formation for individual investors; addressing the increasingly sophisticated investment needs of institutional investors; and providing effective exposure to Japanese assets for overseas investors.”
“We are strengthening our underlying platform – such as risk management, investment processes, and data utilisation – with the aim of becoming an asset manager that can deliver optimal solutions aligned with each client’s objectives.”
“In addition, by leveraging our group network centred around Daiwa Securities, we are enhancing collaboration across distribution, investment management, and product development.”
Sano also shares his views on the role of foreign asset managers in the changing landscape in Japan.
“We believe that the role of overseas asset managers will continue to become increasingly important. In particular, they have clear strengths in providing access to global assets, advanced investment techniques, and specialised strategies such as private markets, thematic investing, and quantitative approaches,” he says.
“At the same time, when it comes to meeting the specific requirements of Japanese retail and institutional clients – including yen-based reporting, hedging design, product structuring, and governance – domestic asset managers tend to have an advantage. These strengths reflect not only regulatory requirements, but also language and cultural considerations unique to the Japanese market.”
“For Japanese investors, it is essential that investment products be delivered in a way that is tailored to local market requirements, including currency management, liquidity considerations, regulatory compliance, product design, and distribution. We believe the ideal model going forward is a complementary relationship in which the investment capabilities of overseas asset managers are combined with the client understanding and product design expertise of domestic asset managers.”
