Daiwa sees big potential in mutual fund wraps

By Yuko Inoue and Emi Emoto

TOKYO (Reuters) - Daiwa Securities Group Inc (8601.T: Quote, Profile, Research, Stock Buzz), Japan's second-biggest brokerage, said it aims to sell $8.5 billion worth of its new mutual fund wrap accounts in the first year as millions of Japanese retirees shift to investments from savings.

Daiwa, which dominates Japan's consulting wrap market called separately managed accounts (SMAs) for the wealthy, launched mutual fund wraps with a minimum account size of 5 million yen ($43,000) this month, one-tenth of that of its current wraps targeting the rich with 300-500 million yen in financial assets.

"We hope retirees will jump into the market with a significant portion of their funds," Koshiro Taniguchi, Daiwa's managing director, told the Reuters Wealth Management Summit in Tokyo.

Daiwa is the leader in Japan's increasingly crowded market for SMAs, accounts that typically wrap management, administrative and transaction costs for all financial products in the customer's portfolio into one asset-based fee.

SMAs offer tailor-made portfolios for individual customers through consultancies with fund managers, while mutual fund wraps are based on investment trusts featuring a fee of 1.5 percent of total assets a year.

Daiwa in the past year has boosted its SMA assets by 40 percent to 251 billion yen, spread over 2,700 accounts, making up 35 percent of Japan's total SMA market.

But Taniguchi said that fell short of its aggressive target of increasing the assets to 300 billion yen by March due in part to unexpectedly slow demand for Japanese stock-based portfolios in Asia's competitive private banking market early this year.

"Our strategy is to expand the scope of our clients through the sale of mutual fund wraps," the 30-year Daiwa veteran said. "We expect some of these clients to move into higher-end SMAs."

In a three-month campaign, Daiwa will hold seminars on mutual fund wraps at all its branches in Japan starting in October, he said.

Asset management is expanding in Japan as the economy rebounds and deregulation allows financial institutions to sell a broader mix of investment products. A looming wave of retirements by Japanese baby boomers, expected to begin this year, has bankers jockeying to manage their nest eggs.

While potential clients are prosperous, they are relatively few in number. Only 865,000 households in Japan had assets of 100 million yen or more, according to a 2006 report from Nomura Research Institute Ltd.

Financial assets held by this group totaled about 213 trillion yen as of 2006.

While foreign private bankers are making inroads into Japan's wealth management market, touting their expertise and global reach, Taniguchi said he is closely watching the moves of Citigroup (C.N: Quote, Profile, Research, Stock Buzz) and HSBC (HSBA.L: Quote, Profile, Research, Stock Buzz) (0005.HK: Quote, Profile, Research, Stock Buzz).

Citigroup recently agreed to buy Japan's third-biggest brokerage Nikko Cordial Corp 8603.T for $12.6 billion, its biggest-ever Asian acquisition. HSBC has been in Japan's wealth business for 11 years and plans to soon roll out a retail banking business to reach a broader spectrum of the wealthy.

"Offensives from foreign banks are a threat, and we may be targeting the same market," Taniguchi said. "But global competition is a good thing."