UK - Deutsche Asset Management (DeAM) is embarking on a major restructuring of its business operations in Japan, and has decided to retain only alternatives and Japanese small cap equity in its institutional business offering, along with a small part of its retail business.
Sources close to the move said that prominent members of DeAM’s Japanese large cap equity team had left following a decision to focus on retail funds. DeAM’s alternatives business will focus on hedge funds-of-funds and real estate.
DeAM’s performance in Japan has been “unremarkable” and with the industry already facing considerable pressure on the back of “daiko henjo”- the process by which corporate pension funds return part of the assets back to the government - many feel DeAM’s change of tack in Japan was inevitable.
“There aren’t many bright lights in Asia for asset management,” added one Deutsche insider. “Winning business in Asia is a long game. Deutsche never managed to crack the Hong Kong retail market, and with the institutional business in Japan decimated by daiko henjo, they turned to retail but they haven’t got to grips with that either.”
Total assets under management of Deutsche Japan including Deutsche Trust Bank and Deutsche Asset Management, from Japanese pension funds had fallen to JPY211bn (US$1.8bn) as of March 2005 from JPY359bn as of March 2004.
“Obviously DeAM’s asset management business was not profitable and they don’t see it as a profitable component of their core business. So they feel it is time to withdraw and sell what they can and retain only those businesses which they feel can generate income in the long run,” said one consultant in Tokyo.
Deutsche has already decided to close its Trust Bank business in Japan due to changes in regulation that no longer make it necessary to have two legal entities carrying out similar business operations.
DeAM signed an agreement with Aberdeen Asset Management in early July to sell parts of its UK and Philadelphia-based asset management businesses for up to £265m. DeAM’s UK-based hedge fund and real estate businesses and its Philadelphia-based high yield business do not form part of the sale and remain key and integral parts of DeAM’s global platform.
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