Meeting the needs of demanding baby boomers
Nomura's annual Tokyo Money Fair is a draw for Japan's ageing baby boomers, who turn up to listen to lectures on "The Necessity of Diversified Investment" and other topics delivered by Nomura and the asset managers that sell funds through the brokerage.
Their eagerness is not surprising. Some of the baby boomer generation, the demographic bulge of people born after the second world war, will start reaching the standard corporate retirement age of 60 next year. Many of the rest have only just retired. For the remainder of their lives they will prosper or perish according to the wisdom of their investments.
The annual size of the baby boomer market is expected to total about Y16,000bn ($135bn, €101bn, £69bn) per year - measured by the lump sums baby boomers receive from their companies when they retire. Seven million people will reach 60 next year.
They represent an extremely lucrative customer base, but analysts predict they will be tougher customers than previous generations.
"Baby boomers are looking forward to retirement. At their companies they have to be very disciplined and live by rules. But in retirement, the selfish part of their characters will be liberated," says Tomoo Sumida, economist at Nomura Asset Management.
But maintaining that wealth will be harder than before for two reasons, says Mr Sumida. Inflation is returning and will whittle away the trillions of yen stored in savings accounts earning virtually no interest. At the same time, as life expectancy creeps up they will have to make their resources last a few more years. "Japanese people are living longer, and they might outlive their money."
Mr Sumida estimates the baby boomers will need annual returns of about 4 or 5 per cent to make their money last the rest of their lives in a mildly inflationary environment.
But there is a complication. Most baby boomers are beginners at investment. Many have already dabbled in Japanese shares while keeping the bulk of their money in low-risk, low-return bank and post office accounts, but balanced portfolios are virgin territory.
Financial service companies are responding to these needs with a cornucopia of investment trusts designed with baby boomers in mind.
The standard model they are marketing to baby boomers is a product that invests in a variety of different asset classes and uses the gains to make regular payments to customers. Retired people receive income from their pensions in every even-numbered month, and many investment trusts make the payments in every odd-numbered month to make up for this.
A survey from Daiwa Fund Consulting has found that funds in diversified investment trusts making at least six payments a year leapt 520 per cent in the year to September, to Y4,460bn. At the beginning of 2004 it was only Y16bn.
The top seller so far is Nomura Asset Management's "My Story" investment trust. Launched in 2005, the trust is its first in six years to accumulate more than Y1,000bn in assets.
The Three Top fund from rival Nikko Cordial, one of Japan's biggest securities houses, attracted more than Y200bn in funds before it was launched in October.
Three Top's attempt to offer an entire balanced portfolio within one investment trust is typical of Japanese financial services companies' approach to the baby boomers and Japan's older investors in general. Three-quarters of the fund's investments are spread across three different bond categories: highly rated, high-yield and emerging market. Another 25 per cent is in global equities, of which three-fifths is in high dividend shares.
Many western investors with the same amount of investable assets might look askance at these diversified trusts - preferring to balance their portfolios through their own efforts by buying a bond fund here and a foreign equity fund there.
But industry executives say this makes sense in an industry where many investors are still quite naive - even rich ones.
However, some say that from an investment point of view, the baby boomer phenomenon has been overblown.
Akira Fukuda, head of products and marketing and senior executive director at Nikko Cordial, says the brokerage needs to concentrate on younger clients as well.
"Things have changed dramatically in the past five or 10 years, and seniority at companies is no longer just age-based. Some younger people are paid well."
Remerciements à :
David Turner, Financial Times
Published: Jan 08, 2007
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