T. Rowe Price Associates, betting that Japan is poised for a fund boom, has become the latest U.S. mutual fund company to stake a claim in the country.
The Baltimore-based company announced it is paying $16 million for a 10% interest in an asset management company, to be headed by Sumitomo Bank Ltd. and Daiwa Securities Co., that will target Japanese retail and institutional investors.
T. Rowe executives also plan to use the Sumitomo-Daiwa joint venture, based in Tokyo, to sell Japanese investors a set of international funds it will manage with Robert Fleming Holdings Ltd., London.
"This is an enormous market," said George Roche, the president and chairman of T. Rowe. "It is potentially very significant."
The venture with Sumitomo, Japan's second-largest bank, and Daiwa, its second-largest brokerage firm and biggest mutual fund distributor, should be launched by April 1, said the spokesman for T. Rowe, which has $148 billion of assets under management.
The venture will begin with $29 billion of institutional portfolios and mutual funds that Daiwa and Sumitomo currently manage. Though T. Rowe will not manage the Japanese funds, it will contribute marketing expertise and help ensure a more disciplined, Western-style approach, in contrast to the momentum-investing approach Japanese managers are used to.
In jumping into the Japanese market, T. Rowe joins U.S. firms like Goldman, Sachs & Co., Alliance Capital, and Putnam Investments. All are banking on a wave of financial services reforms in Japan to open opportunities in retail investing and asset management for pension plans in a $10 trillion market, the world's second-largest.
"T. Rowe is just part of the frenzy that U.S. fund managers have started by plowing into the Japanese market," said Ben Phillips, a consultant at Cerulli Associates in Boston.
But Mr. Phillips warned that Japan, whose people are wary of investments, is a difficult market for asset management companies. In the past decade, mutual fund assets under management have actually shrunk, to about $360 billion from more than $400 billion. That has as much to do with the sickly Japanese stock market as it does with investor sentiment.
Just 4% of Japanese household assets have invested in mutual funds, known in Japan as investment trusts, compared with 37% in the United States, Mr. Phillips said.
T. Rowe appreciates the challenge and does not expect significant short- term profits, Mr. Roche said.
"You will have to have a gradual movement in this market where people get more used to investing in stocks and then in foreign markets," he said.
Japan's "big bang" reforms have opened the door for mutual funds to be sold through banks, insurers, and other financial services companies. The country's legislators are also considering the creation of 401(k)-style retirement plans for Japanese workers, which would create even more opportunities for asset managers.
T. Rowe plans to form a fifty-fifty joint venture with Fleming to manage the international funds. Through an existing joint venture, the two companies manage $30 billion of international assets for U.S. investors.