Vanguard Group is considering selling funds directly to investors in Japan as it seeks to crack a market that’s largely eluded it for almost two decades.
The world’s second-largest money manager, which gets only a tiny fraction of its $5 trillion in assets from the Asian country, is mulling direct sales to individual investors on top of its existing strategy of selling through partners. No date has been set for such a move, according to Japan head David Kim, who says the company also added employees in the country.
The move would be a strategic shift for the Valley Forge, Pennsylvania-based firm’s Tokyo operations, which date back to 2000. Until now, Vanguard has sold its funds through tie-ups with companies including independent mutual fund house Saison Asset Management Co., whose fund of Vanguard funds oversees about $1.45 billion.
“We have a long way to go” in Japan, Kim, 45, said in an interview at Vanguard’s Tokyo headquarters. “We can do more.”
Index-fund pioneer Vanguard faces challenges in Japan because it’s unwilling to pay commissions to fund distributors to have them sell its products, a model that’s still rife across Asia and that ultimately adds costs for investors, said Yan Pu, head of portfolio review for Asia at the money manager.
“This is a tough environment,” Pu said. “But we’re actually committed to the region. And that’s why our Japan office is growing. We understand the headwind, but we’re willing to come in to educate.”
U.K., Australia
Vanguard started selling funds directly to customers in the U.K. last year. The firm is “pleased by the reception” of its new service, it said in an emailed response, while declining to give further details. It sees an opening for this strategy in other markets such as Japan as regulations including the European Union’s revised Markets in Financial Instruments Directive, or MiFID II, require financial firms to be more transparent about costs.
Vanguard is still contemplating “the right way” to sell funds directly to investors in Japan, Kim said. Outside the U.S., Vanguard Australia has been selling funds directly to individuals for more than 20 years.
But Kim and Yan concede that any expansion won’t happen overnight in Japan, because while Vanguard is well-known in America, it isn’t always a household name in the Asian country.