Staff writer

Choosing investment options is difficult for laymen. But a choice of investment trusts must be made when joining a 401(k)-style retirement plan.

Frank Russell Japan Co.'s strategy in entering the new domestic pension market is centered on that difficult part. By offering investment trusts called "multimanager funds," the firm will effectively shoulder part of the customers' choosing responsibility.

The Tokyo unit of the Washington-based investment services company has recently introduced multimanager funds through Bank of Tokyo-Mitsubishi branches.

It will make these funds adaptable to the new corporate pension scheme, said Masanori Tsuno, president and representative director.

Defined-contribution retirement plans modeled on the 401(k) plans of the United States are expected to be introduced in Japan as early as fall 2000.

In 401(k) plans, company employees regularly set aside a portion of their salary for retirement, which they distribute among various investment tools such as investment trusts. Benefits depend on investment results, unlike in conventional defined-benefit plans, for which they are fixed.

Russell's funds can cope with the general lack of information among individual workers participating in defined-contribution plans, Tsuno said.

"Even in the U.S., ordinary people are not sure of how to combine funds or do not get information on such things as personnel transfers of fund managers," he said.

Multimanager funds are managed by a mix of fund management firms selected by Russell. For example, the Japan stock fund is managed by three firms, which have different fund-management styles.

Russell monitors investment performance and technical movements, and replaces the fund management firms with others whenever necessary. Russell thus acts as a manager of fund managers.

"In this way, a mix of fund managers can be kept in an optimal condition," Tsuno explained. This contrasts with a conventional investment trust, which is managed by a single company.

Accordingly, Russell's potential competitors in the Japanese market are "firms that can do qualitative analyses (of fund managers) and serve products like our multimanager funds," he said, adding it will take time for any Japanese institution to catch up.

Another emphasis for Russell in the new pension business is investment education for company workers, he said. The firm has knowhow acquired in the U.S. Besides, it has gotten useful feedback from Bank of Tokyo-Mitsubishi representatives who were trained by Russell to sell multimanager funds, he said.

He learned that Japanese people attach excessive importance to the guarantee of principal in pension plans. Russell is considering such concerns in developing a worker education program.

"What you have to fear most in terms of pensions is inflation," he said, explaining the uniqueness of the Japanese concern. "Principal guaranteed means nothing if inflation occurs."

Russell acts as a consultant on retirement plans in various countries, advising about 250 plan sponsors on the investment of over 100 trillion yen in assets. In Japan, it has some 40 corporate clients for defined-benefit pension plans.

In the new pension system, prospective participants are individual workers who are likely to be near-sighted in regards to investment.

"That's where education plays an important role," he said.