After years of effort, U.S. commercial banks are beginning to crack the market in Japan for pension fund management.

According to recent reports in the Financial Times, both Citicorp and Bankers Trust New York Corp. have been managing portions of Nempuku, Japan's largest pension fund, with $185 billion of assets under management, in the past year.

Nempuku has given Citicorp $1.15 billion to manage and Bankers Trust $385 million, according to the report, which was confirmed by industry sources.

Bankers and analysts said the shift in Japan toward using foreign fund managers is a sharp break with earlier policies and comes amid a massive wave of financial deregulation known as the "Big Bang."

Until recently, Japanese pension funds relied almost exclusively on Japanese trust banks and other local financial institutions for pension management.

"Foreign banks have had a tough and barren time trying to crack the market, but that effort is finally beginning to pay off," said Charles Ruffel, chief executive at Asset International, a Greenwich, Conn., firm that tracks asset management trends worldwide.

The Financial Times reports added that two U.S. investment banks, Goldman, Sachs & Co. and Morgan Stanley Dean Witter, were also named to manage sizable chunks of Nempuku's assets, as was Schroders PLC, the British fund manager.

While Citicorp declined to confirm the report about it, a spokeswoman at Bankers Trust said that her company has developed a long-term relationship with Nempuku, which manages pension assets for government employees and public companies. On a worldwide basis, Bankers Trust manages about $13 billion for Japanese clients, about 40% of which is indexed, she added.

Banking and industry sources said low yields in Japan combined with an aging population and rising pension assets are driving Japanese pension funds to foreign banks in search of better returns.

The Japanese 10-year Treasury bond now yields only 1.55%, compared with about 5.65% on U.S. Treasury securities of the same maturity.

U.S. banks first set up trust banks to develop fund management in Japan 10 years ago, but their market share has remained limited.

Among the original entrants to Japan's trust banking market were Chase Manhattan Corp., Citicorp, Bankers Trust, and J.P. Morgan & Co.

Two other banks that subsequently merged, Manufacturers Hanover Trust Corp. and Chemical Banking Corp., also set up trust banks in Japan. More recently, State Street Corp. has also entered the market.

Still, foreign banks' share of Japanese pension fund management has climbed slowly, from less than 3% in 1989 to between 7% and 8% in 1997, industry sources said. However, bankers and analysts predicted that recent trends could open the door to business with other funds, especially corporate pension funds.

"The much bigger deal is on the corporate side and watching what companies like Sony do," Mr. Ruffel said.

Bankers noted that U.S. banking companies stand to gain not only in asset management but also in the related securities custody and processing businesses where State Street, Bankers Trust, Chase Manhattan, and Bank of New York Co. are active.

Despite the encouraging signs, bankers warned that Japan remains a tough market for Western-style fund management.

"The Japanese are much more conservative, and they value safety more than higher returns," said Don Hilber, an economist at Norwest Corp. in Minneapolis. "They have a different mind-set from Americans."

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