Daiwa Asset Management Unveils Ambitious Vision for the Future

Could you give us a quick introduction to Daiwa Asset Management?

We are one of the leading asset management companies in Japan. However, from a global perspective, we are not large enough. Generally, asset management companies operate two functions: “investment trusts” and “investment advisory.” Historically, we have focused on “investment trusts”.

This business is profitable and offers a comfortable position, but I believe that comfort often lacks the challenges needed for growth. While we are actively working to enhance our services, we cannot yet secure mandates from major global investors, which limits the scope of our operations.

We are, however, working to position ourselves on the global stage. Currently, many employees feel that we are a domestic company rather than a dynamic global firm with a challenging spirit. This mindset can result in talented employees leaving to pursue more demanding opportunities at larger firms with greater global ambitions.

In May 2024, Daiwa Asset Management entered into a capital and business alliance with Japan Post Insurance. How will this alliance help find a solution to the challenges you outlined?

A key part of our strategy is to reform our company. We aim to cultivate a strong presence and foster a challenging spirit. To create such opportunities, we have explored several alliances. However, these efforts did not always yield the desired outcomes. In the course of seeking a new type of partnership, we came to the conclusion that a partnership with JPI would be the way to go. They are asset owners and we are asset managers. They understand how to delegate to investment advisors, and most importantly, they manage a substantial amount of asset. In fact, they are one of the largest insurance companies in Japan.

We have discussed and reached an agreement for JPI to acquire a 20% stake in our company. This partnership will enable us to expand our investment advisory business by allowing us to be entrusted with the management of some of their assets. Without such a platform, we wouldn’t attract interest from investors. However, once the platform is in place, it opens the door for other firms to collaborate with us.

This is my current vision—establishing capital alliances with JPI and driving our growth forward with all investors. 

What are some of the key objectives that you would like the alliance with Japan Post Insurance to achieve in the next few years?

We have established key performance indicators (KPIs) for the first three years to demonstrate the effectiveness of this alliance. Naturally, after this initial period, we will need to evaluate the outcomes, and if necessary, decide whether to continue moving forward or revert to the starting point. For now, however, we are confident in the potential of this partnership.

While we possess the expertise and a strong track record in fund management, what we currently lack is a platform. Once we secure this platform, we can fully leverage our capabilities. I am genuinely excited about the opportunities this alliance presents and optimistic about the future.

What challenges do you anticipate?

One challenge is the concern that bringing in multiple fund managers could create a lack of harmony within the company. While I am confident in our abilities, another potential risk is whether we can achieve appropriate performance. I trust that our team and fund managers can achieve strong outcomes, but, as with many things in life, there are no guarantees. That said, our fund management capabilities have improved significantly in recent years, and if this trend continues, the associated risks will be reduced.

In March 2024, the Nikkei 225 roared past the 40,000 mark, crowning a record-breaking year for Japan’s financial markets. This favorable backdrop drew an unprecedented flood of foreign capital into Japan’s financial markets, with foreign investments in Japanese equities reaching a 10-year high. What were the core reasons for the extraordinary performance of Japan’s investment markets?

There are several reasons for this performance, but one of the most significant is the global investment environment. Another major factor is the corporate governance reforms imposed on Japanese companies to improve capital efficiency and enhance transparency. Additionally, economic and geopolitical tensions in the Asia Pacific region have played a key role, as investors are reallocating assets to markets considered safer and more stable. Seeking diversification, many investors have turned to Japan.

What impact has the acceleration of corporate governance reforms had on the corporate environment?

Japanese reforms are now ongoing and steadily improving the corporate environment. However, a significant issue is that in many companies, older managers still remain in leadership positions. These types of Japanese corporations tend to be very conservative. Even when companies are required to boost capital investment or shareholder returns, they still hold onto excessive amounts of cash. With this older management in place, organizations often become stagnant, resisting innovation and change, which makes them less appealing for investment.

As you know, Japan's population is rapidly aging. Baby boomers born just after World War II continue to hold key management positions, often reluctant to pass leadership to the younger generation. Slowly, however, top management is shifting to the next generation, which is more open to governmental and corporate reforms. While these reforms are progressing steadily, the effect they have on bettering the investment environment takes time to be felt. Although I am optimistic about the changes, I recognize the limitations in my expectations. Careful selection of companies for Japanese investment is essential. That is why we are focusing our attention and expectations on a new stock price index, the JPX Prime 150.

The JPX Prime 150 consists of 150 companies selected by the JPX Institute. The index is split evenly, with 75 companies chosen based on their equity spread and the remaining 75 companies selected based on market capitalization among those with P/B ratios above 1x.

It seems you are suggesting that the era of simply investing in indices may be coming to an end, and that selecting individual companies has become more critical. Your firm is addressing this paradigm shift through two strategies: the creation of targeted ETFs, such as the JPX Prime 150, and active management. In your view, which approach is more effective when investing in Japan?

This debate really highlights the differences between the U.S. and Japan. In the U.S., the focus is primarily on index investments, particularly the S&P 500. This index comprises only 500 companies, which represents a relatively small fraction of the total number of U.S. companies. However, the S&P 500 makes careful, strategic decisions about which companies to include, which is why it is so challenging to outperform the index.

In contrast, Japan’s equivalent is typically the TOPIX, which includes over 2,000 companies. To be frank, some of these are not high-quality businesses. This is where active management has the potential to deliver better results than the TOPIX. If active management cannot achieve that, it usually indicates that the fund manager lacks the necessary capabilities.

In January, the Japanese government announced a revamp of the Nippon Individual Savings Accounts (NISA), a tax-free stock investment program for individuals. What impact do you expect the new NISA to have?

I believe that the NISA program is quite beneficial for the Japanese people, especially the younger generation. Although NISA begun in 2014, it was expanded in January 2024. It has already encouraged more people to think about investing, penetrating even to the general population. This shift will provide the public with a better understanding of investment trends over time.

Currently, individuals in their over 60s hold the majority of Japan’s wealth, and they tend to keep their money in the bank because their economic experience over the past 30 years hasn’t been particularly favorable. This accumulation of wealth occurred during a period of deflation or very low inflation. This is now changing, as healthy levels of inflation are persisting.

At present, people have sufficient savings, but looking ahead, younger generations may face challenges as pension funds continue to diminish. In this context, investing will play a crucial role in ensuring financial security.

What do you think the role of asset management firms, such as yours, should be when it comes to educating the general public?

Our role is key. This is why we established a new department focused on spreading information about Asset Management The sole purpose of this department is education—it will never recommend specific products. Educational outreach will be conducted through various channels, including media, YouTube, and seminars. The department is called the Center for Dissemination of Investment and Asset Management.

How important is attracting foreign investors for Daiwa Asset Management?

Attracting more global investors is essential for us, and this is precisely why our stock selection strategy is crucial. When evaluating a company, we look beyond financial performance to consider intangible factors as well. These might include management style, human resources, innovation, and other key elements. While a market crash would naturally impact all stocks, our focus is on identifying those companies that we believe will rebound quickly. This is a message we can effectively communicate to the market and to investors.

Gaining the confidence of global investors is essential for us to become a top-tier asset management company. Therefore, appealing to foreign investors is a priority for us.

What do you think are the competitive advantages of Daiwa Asset Management over your competitors?

First and foremost, I would highlight our capabilities in investment management. Additionally, I believe our employees feel comfortable and satisfied working here. We have some exceptionally talented individuals, and creating a supportive environment is essential for enabling them to perform at their best. We also offer numerous opportunities for staff to advance their careers abroad through training programs, providing them with a sense of progression at Daiwa Asset Management.

What goals would you like to achieve during your tenure as the president of Daiwa Asset Management?

As a person, I enjoy challenges and have taken on many throughout my career. Perhaps the most significant shift in my life occurred when I assumed the role of president here. My primary goal is to transform the company, repositioning Daiwa Asset Management as a global leader. If I can accomplish this before passing the company on, I would feel a great sense of pride.