* Pension plan management in Japan is available only to trust banks, insurance
companies and licensed discretionary advisers. Most U.S. investment managers
seek access to the Japanese pension market as discretionary advisers, although
the vast majority of pension assets in Japan are managed by trust banks and
insurance companies.
November 9, 1994
TO: BOARD OF GOVERNORS NO. 115-94
INTERNATIONAL COMMITTEE NO. 20-94
RE: INSTITUTE VISIT TO JAPAN
__________________________________________________________
During the week of October 24, 1994, Cathy Heron, Mary
Podesta and I were in Japan to step up Institute efforts to
obtain increased pension market access for U.S. investment
managers. By preparing a paper that highlighted the problems in
the Japanese pension market and presenting this paper to Japanese
government officials and press just prior to the resumption of
the U.S.-Japan trade negotiations, the Institute was able to draw
attention to our market access issue at a particularly important
time. We also attended the Eighth Annual International
Investment Funds Conference.
A. INSTITUTE EFFORTS FOR INCREASED PENSION MARKET ACCESS IN
JAPAN
Background
As you know, increased access to the Japanese pension
management market has been a priority of the Institute for the
past few years. In this regard, we have sought regulatory
changes in Japan that would provide discretionary investment
advisers* with (1) improved access to Japan's corporate pension
market and (2) access to public plan assets by permitting
discretionary advisers to compete with trust banks and insurance
companies to manage the portion of public pension plan assets
available for non-governmental management.
For this purpose, the Institute has worked closely with
Treasury Department and other Administration officials on pension
market access issues. The Clinton Administration has made access
to Japan's pension markets for U.S. advisers a priority in the
ongoing trade negotiations with Japan.
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Institute-Sponsored Paper on Japanese Pension Market
Most recently, the Institute retained the Employee Benefit
Research Institute (EBRI) and Professor Robert Clark to produce
the attached special report on the Japanese pension market.
(Attachment A) The report, co-sponsored by the Institute and the
European Federation of Investment Funds and Companies (the
association of our European counterparts), was completed in late
October.
The report notes that Japan has one of the most rapidly
aging populations in the developed world as a result of an
extremely low birth rate and a very long life expectancy. For
this reason, pension assets should be invested to produce the
highest possible return under prudent investment strategies. As
the report details, however, Japanese Ministry of Finance
regulations inhibit competition among investment managers and
constrain pension asset management. These regulations have
resulted in lower pension returns than those of most other
industrialized nations. The implications of these demographic
trends and this poor level of investment return on pension plan
assets are quite significant for Japan, but are as yet not well
understood by the Japanese public.
Discussions in Japan about Pension Market Access
The Institute's report proved to be of significant interest
in Japan, among both Japanese officials and the media. We
presented the report, translated into Japanese, to officials at
the Ministry of Finance (MOF), the Ministry of Health and
Welfare, the Pension Fund Association, and Nenpuku, the agency
affiliated with the Ministry of Health and Welfae which is
permitted to designate managers for the portion of public fund
assets permitted to be invested in the securities markets.
Immediately following our discussions in Tokyo, U.S.-Japan trade
talks resumed in Washington, where pension management issues were
a major topic of discussion. In Tokyo and here in Washington
(both before and after the trip), we also met with a number of
Japanese news organizations to describe both the report and our
discussions with MOF. The high level of media interest suggests
that market access issues in this area are likely to get
significant coverage in the future. Attached are translations of
several articles that appeared in the Japanese press regarding
the Institute's visit and the report. (Attachment B)
In addition to wide circulation to the press, copies of the
report have been provided to Administration officials who have
indicated that this type of pressure by the U.S. and European
money management industries would be helpful in the ongoing trade
negotiations with Japan. We have learned informally from
Administration officials that, to date, the Japanese have not
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stated what concessions they will make, although they have given
indications that they will agree to permit a single firm to be
licensed both as an investment trust manager and a discretionary
investment adviser. The U.S. has asked the Japanese to be
prepared to describe all the changes Japan is willing to make in
talks scheduled for November 16-18. The Administration will
continue to work for an agreement that includes pension market
liberalization.
B. EIGHTH ANNUAL INVESTMENT FUNDS CONFERENCE
While in Tokyo, we also attended the Eighth Annual
Conference of mutual fund industry and association
representatives from around the world. The conference, hosted
this year by the Japanese Investment Trust Association and
attended by representatives from 17 countries, provided an
opportunity to discuss issues of common interest and to learn
about developments in other mutual fund markets. Attached is a
copy of the conference agenda. (Attachment C)
On the day before the international conference we met with
representatives from the European Union countries to discuss
issues of particular interest to the U.S. and the E.U. As a
result of these discussions, we agreed to continue to work
together more closely on market access efforts, such as the
report on the Japanese pension market. Specifically, it was
agreed that a coordinated effort should be undertaken with
respect to Japan's investment trust market. We expect this will
be on the agenda of the Ninth Annual Conference, to be held in
France next year.
In June, a blue ribbon advisory council to MOF issued a
report on the need for reform of investment trust regulation.
The report recommended comparatively minor reforms and expressly
failed to recommend elimination of the prohibition on dual
licensing of discretionary investment advisers and investment
trust managers, a prohibition that makes engaging in business in
Japan prohibitively expensive for foreign money managers. The
U.S. and E.U. delegates agreed to develop a joint response to the
report expressing our disappointment with the advisory council's
refusal to deal with this and other access issues. The statement
will be provided to MOF and trade negotiators in both the U.S.
and the E.U.
* * *
We will keep you informed of further developments on these
market access issues.
Paul Schott Stevens
General Counsel
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Attachments