The following is a translated excerpt from Kohji Sugita’s comprehensive book, World of Toshi Shintaku (January 2019, Kinzai Institute for Financial Affairs, Inc.), about Japanese investment funds (toshi shintaku), commonly known as toshin.

IJ will reproduce Chapter 10 “Future of Toshi Shintaku”, Section 3 “Recognizing Problems with Toshin Sales and Corporate Value” in four parts. Following is the third of the 4-part series.

3.  Fewer holdings among younger generations

Compared to the US, young people in Japan have far fewer holdings in investment funds.  As shown earlier (see Part 1), the fund penetration rate for Japanese households is 8.7%, one-fifth of the rate in the US, at 43%.  When compared by age group, younger Japanese invest in funds at a rate that is one-tenth the rate of their US counterparts 35 and under, whereas Japanese 65 and older invest at about one-third the rate of older Americans.

Holding rate for investment funds, by age group (2015)

Source: Japan - JSDA “Nationwide Survey on Securities Investment (Personal Survey), 2015
US - ICI “Ownership of Mutual Funds, Shareholder Sentiment, and Use of Internet, 2015”

One major factor in the difference between investment levels of younger Japanese and Americans is the prevalence in Japan of defined contribution (DC) pension plans.  Japan has expanded its individual defined contribution (iDeCo) system and launched NISA (Nippon Individual Savings Account), a tax exemption scheme for individual investors in stocks and investment funds.  In particular, the installment-type NISA, which allows investors monthly contributions to low-cost investment funds approved by the FSA, is designed to make investment easy for young people.

Both DC pensions and the installment-type NISA presume investment over the long-term investment; both could contribute to prolonging the average holding period of toshin and perhaps allow more Japanese individuals to experience investment success.

Compared with similar schemes overseas, however, Japan’s DC pensions need further refinement.  Additional reviews of DC pensions are necessary to reinforce Japan’s public pension system, which is threatened by an aging population overall and a shrinking working-age population.

4.  Operational governance

Most Japanese funds are of the contractual type that lacks an internal governance mechanism, such as a board of directors.  Most toshin management companies are not independent⁴, belonging to large financial groups of banks, securities houses, insurance companies, etc.  Critics of Japanese fund management companies have called for more hands-on management, including more freedom to design products and voting rights for portfolio stocks.

The “Code of Conduct for Confidence in Investment Trust” established by the Investment Trust Association in 2017 calls for independent, professional management and complete transparency with regard to conflicts of interest⁵.  Some fund management companies have already begun to invite independent directors or to set up an independent advisory board.

One fundamental and radical solution to issues of governance might be to change toshin from the contractual-type to corporate-type operation.  However, in continental Europe where contractual-type funds predominate as in Japan, fund management companies have worked out how to operate independently, despite belonging to large banking or insurance groups and the like.  In my opinion, it may be more practical to pursue improvements in Japan along the lines discussed above.


4 Independence -- The investment trust management company provides and manages investment trust products which respond to the investors’ needs from an independent standpoint based on its own professional decisions.
5 Conflicts of Interest -- The investment trust management company specifies potential or apparent conflicts of interest, and manages them fairly and effectively by means of disclosing them adequately and so on.


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