January 13, 1995
TO: BOARD OF GOVERNORS No. 8-95
INTERNATIONAL MEMBERS No. 1-95
INVESTMENT ADVISER MEMBERS No. 5-95
RE: U.S. AND JAPAN REACH ASSET MANAGEMENT TRADE AGREEMENT
______________________________________________________________________________
We are pleased to inform you that U.S. and Japanese trade negotiators reached an
agreement earlier this week that is expected to expand significantly the opportunities for U.S.
firms seeking to enter the pension management and investment trust (mutual fund) markets in
Japan. The principal features of the agreement are described in the attached Institute press
release.
Since 1992, the Institute has placed a high priority on liberalization of Japanese
restrictions that prevent U.S. investment advisers from obtaining meaningful access to the
Japanese market. As we previously advised you, the Institute has worked closely with U.S.
trade negotiators on these issues, and, in October 1994, the Institute co-sponsored a paper that
documented the adverse effect these market access restrictions have had on pension plan
performance in Japan. See Institute Memorandum to the Board of Governors No. 58-93 and
International Members No. 19-93, dated June 28, 1993 and Institute Memorandum to the Board
of Governors No. 115-94 and the International Committee No. 20-94, dated November 9, 1994.
While the agreement does not eliminate all regulatory barriers, it represents an
important step in opening the Japanese pension and investment trust markets to increased
competition. The agreement provides access to a significant portion of Japan’s public pension
assets, amends the asset allocation rules applicable to pension plans to permit the use of
specialized managers and requires the development of mark to market accounting rules and
performance evaluation systems that will permit managers to compete based on performance.
The agreement promises a gradual increase in the amount of private pension assets that can be
managed by discretionary advisers. Nevertheless, a significant portion of these assets will
remain reserved exclusively for trust banks and insurance companies to manage.
The agreement also liberalizes investment trust (mutual fund) regulation in several
important respects. As reported previously, Japan has agreed to permit the same firm to obtain
a license as both a discretionary investment adviser and an investment trust manager without
requiring separate capital, facilities, and personnel; expand the range of permissible
investments for investment trusts; and implement a system of performance reporting for
investment trusts. See Memorandum to Board of Governors No. 128-94 and International
Members No. 10-94 dated December 23, 1994.
We will keep you advised of developments.
Catherine L. Heron
Vice President & Senior Counsel
Attachment