Sweeping financial deregulation in Japan will require fund managers to improve their skills and necessitate a fundamental change in attitude among individual investors, according to the Japanese arm of Boston-based Putnam Investments Inc.
“Investors here tend to take it for granted that they can get high returns even with low risks,” said Takehiko Watanabe, managing director and general manager of the Tokyo branch of Putnam Advisory Co., an investment advisory unit of Putnam Investments.
A change in mentality will not only help investors prepare for a comfortable life after retirement in Japan’s aging society, it will also prove a boon to Putnam, which manages the American version of investment trusts, also known as mutual funds.
Investment trusts — where small-scale investors’ pooled funds are invested in securities such as stocks and bonds — are expected to play a pivotal role in transforming the management of Japan’s estimated 1.2 quadrillion yen in personal financial assets.
Although only brokerages are allowed to sell investment trusts at present, in December banks will be able to let investment trust firms sell their products on banks’ premises. Banks themselves will be permitted to begin selling them sometime in fiscal 1998.
With an eye on banks selling investment trusts, a core part of the deregulation plan, Watanabe hopes to have three major Japanese banks — Sakura, Dai-Ichi Kangyo and Sanwa — as partners to sell Putnam’s mutual funds. At present, six Japanese brokerages, including affiliates of these three banks, sell Putnam’s funds. The funds’ net assets under management for domestic investors accounted for 30 percent of some 880 billion yen in foreign investment trusts sold in Japan as of September. Four of the items only hit the market this or last year.
“Investors will move toward equity-oriented mutual funds,” Watanabe said, predicting one possible situation after deregulation. Putnam’s funds here are low-risk items invested mainly in bonds. The products apparently match the needs of small-scale Japanese investors, who are generally not yet used to investment trusts because principals are not guaranteed.
But the expected penetration of investment trusts into people’s money management can lead to an expansion of high-risk, high-return products featuring stocks, according to Watanabe. Investment trusts account for only 3 percent of the total personal financial assets in Japan.
“This will grow to around 9 percent in three to five years,” he predicted. This percentage is close to the level in the U.S., where such funds have been expanding rapidly for the past decade.