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18th in an occasional series on financial deregulationStaff writerAlliance Capital Investment Trust Management Inc. of Tokyo is attempting to calm anxious customers by fully explaining how their funds have been hurt amid global financial instability, company President Takahiro Fujino said.The severe economic environment actually has come at a “very good time,” as December deregulation of banks’ direct fund sales draws near, Fujino said in a recent interview.A subsidiary of a New York-based asset management firm, Alliance plans to choose “five or six” Japanese banks and insurance firms to distribute its funds, Fujino said, adding it is near agreements with two of them. “You will not have to buy high. You will be able to start investing at a low value,” he said, explaining to a customer the advantage of the lower value of funds.Yet even under the liberalization, “Funds may not sell well because people are becoming very nervous about risk. But retailors could become very strong at such a time, as opposed to when the market is booming,” he said, referring to the long-term benefits to the industry.Alliance’s troubles were caused by Russia’s devaluation of the ruble and effective default on foreign debt payments in mid-August, and by the global financial turmoil that followed, especially in emerging market economies.The firm’s net assets, which totaled 742 billion yen in July, had plunged by more than 20 percent as of last month. Two of the seven funds the firm manages that mainly invest in bonds in emerging market economies and high-yield bonds in the United States also have suffered from the yen’s rise against the dollar since August, Fujino said.But such short-term risks are inherent in the funds, and stopgap measures will not help, he said, stressing the importance of long-term investment. Instead, the firm has been fully disclosing information about the fall in its funds’ value to individual customers and securities firms that sell them, according to the president.The two funds had been very popular because of their high performance — the other side of high risk — and monthly distribution of yields, Fujino said. The weakening trend of the yen, which boosts the relative value of assets abroad, also made the funds attractive.The funds helped Alliance, set up only two years ago, gain the second-largest net asset total — after Goldman Sachs Investment Trust Management — out of nearly 20 foreign-originated investment trust firms operating in Japan.In an investment trust fund — the Japanese equivalent of a mutual fund in the U.S. — investor money is pooled and professionally managed in stocks or bonds. Gains from investments, if any, are distributed to the investors, who also risk losing money.Fujino said it is “revolutionary” that Japanese banks, which have long dealt with conventional savings, recently have placed importance on the asset management business.

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