Barclays Global Investors has agreed to sell its Japanese trust and banking arm to Sumitomo Trust & Banking for Y4.9 billion ($41 million). Although the sale continues a trend of foreign investment managers shedding these legacy fund-administration businesses, the structure of the deal is new and raises a few questions.

For BGI the deal is straightforward. Regulations in Japan used to require that pension funds allocate assets only to life insurance companies and trust banks. Therefore foreign players keen to manage pension money set up these separate entities, with their attendant costs and duplications.

Liberalisation meant that an investment advisory company could now do all kinds of asset management, and many international firms have opted to close their trustee unit û either transferring the entirety to the asset-management company, as in the case of UBS, or outsourcing the back-office work to a third party, as Deutsche Asset Management did (to State Street). BGI will also transfer the asset-management business of its trust bank to its investment firm in Tokyo.

The exception to date is JPMorgan Asset Management, which got rid of its fund administration but took a stake in one of three major consortia of domestic trust banks that dominate fund administration in Japan.

The small price tag û less than half a percent of BGIÆs Y11.3 trillion ($10.9 billion) assets under administration û suggests that BGI is washing its hands of a potential headache outside its core business. Nowhere else in the world does BGI handle fund admin, and in Japan it would be responsible for plenty of legacy trusts.

This is the first time, however, that a foreign shop has sold its fund-admin business outright to a Japanese provider.

ôThis deal brings us two things: assets under administration, and BGIÆs expertise and technology,ö says Yoshio Hishida, deputy general manager for the fund fiduciary planning department at Sumitomo Trust and Banking.

He says the company will retain at least 20 professionals from BGI. But the team numbers around 100, and rivals say the market is full of rumours that the majority of the BGI team will be let go.

A curious feature of the deal is that Sumitomo is buying the business, not Japan Trust Services Bank. JTSB is one of the three domestic trust banking consortia, of which Sumitomo T&B is a one-third shareholder, along with Mitsui Trust and Resona Bank. JTSB has perhaps $1 trillion of assets under administration, and hence scale.

ôWhy is Sumitomo buying these assets but not focusing on improving JTSBÆs output?ö wonders a rival in Tokyo.

Sumitomo T&B maintains its own fund admin business, however, with Y71 trillion ($594 billion) of assets under trust. The BGI acquisition, once it is completed, will bring this over Y82 trillion. The deal remains subject to regulatory approval and the partners hope to implement it by the end of the year.

BGI is the biggest foreign manager of Japanese pension money. Its clients include the mighty Government Pension Investment Fund, and rivals believe the GPIF must have signed off on the deal. But Sumitomo T&B did not comment regarding its targets for client retention.

Another question is what happens to global custody for BGIÆs assets, over $35 billion in Japan. Its global custodian is JPMorgan. Sumitomo T&B often channels cross-border assets under admin to its affiliate trust bank in New York, which is estimated to manage $150-200 billion, making it a modest player on a global scale. Will clients such as the GPIF agree to see their assets transferred to Sumitomo for global custody as well?

JPMorgan officials could not be reached by press time, and Sumitomo officials did not return calls seeking clarification.