Japanese pension funds don’t traditionally use consultants as much as other major countries. This is the view of David Formosa, principal consultant at William Mercer in London. But he does however state that there has been a growing call for consultants’ services as the pension fund industry in Japan has sought to evolve the way it traditionally invests. “It used to be more or less a self-contained industry with a pretty much standard approach towards investment management, but because of low returns and various other difficulties linked to general economic performance, Japanese funds and investment managers recognise the need for change,” he says.
Bob Collie, director of consulting at Frank Russell in London, however, says that he has witnessed nothing but growth in Frank Russell’s activity there. “We have had an office in Japan now for about 15 years, and I have seen consultancy there go from being something that was definitely not part of the landscape to becoming one of our largest overseas offices offering a full range of consultancy services.”
The difference of opinion may lie in the different levels of services that the two companies offer there.
Mercer finds itself involved primarily in benefits advice. “This is where our strength lies,” says Formosa.
“When the DC legislation eventually gets passed, there will be a lot more activity for consultants, particularly in terms of investment strategy and performance, both for Japanese companies and the Japan based subsidiaries of multinationals.”
In contrast, Collie says that the Japanese use consultants in the same way and to the same extent as investment managers in other countries. “The Japanese tended to have strong relationships with banks and other money providers when it came to investment advice, but it is now common for them to ask established consultancy firms for help, be it for manager selection, asset allocation asset liability modelling, performance measurement or less significant areas like private equity and custody. We don’t really get involved with benefits advice as this is not our main area of expertise.” Initially Frank Russell advised on manager research and selection in a market place that didn’t include any international firms and very few domestic players.
The once restricted Japanese pension and investment market is now widely seen as being liberalised, even though it’s a tough nut to crack. “Mercer have been present in Japan for quite some time now,” states Formosa. “But it is a very tough business for consultants. We’ve even seen some of our competitors packing up. And we certainly don’t see any great rush of new consultants coming into Japan.”
Collie says that it is the range of services that has helped Frank Russell survive there. “We’re in a pretty good position now. Though there are others that have been successful, it has to be said that it’s a hard market to break into. Some have fared less well.” He believes that culturally it is important to have staff working at ground level and with full understanding of local business practice.
“Our work chiefly concerns helping multinationals move into Japan as a result of our global structure,” says Formosa. “We do have some Japanese clients, but these tend to look for advice on opportunities outside Japan rather than within. There is a lot of movement nationally and internationally out of Japan.”
Collie says that most of Frank Russell’s Japanese client-base comprises domestic funds. “There is definitely a home bias that is probably bigger than it should be, but the Japanese are interested in using investment managers outside Japan as well.”

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