The cosy world of top-tier managers of Japanese pension money has been upended by the global financial crisis. Over the past five years, the top three positions have all been shared by the same troika of providers: Barclays Global Investors, Diam and Nomura Asset Management. No more.

Sumitomo Trust & Banking has become the biggest manager of Japanese pensions, with ¥14.3 trillion ($149 billion) of such assets under management, at the close of the 2008 fiscal year (31 March). State Street Global Advisors and Mizuho Trust & Banking, previously confined to the middle ranks, have also secured places in the top five.

So reports the Hong Kong-based Japan Pensions Industry Database. The JPID obtains its data from returns that managers file with the Japan Securities Investment Advisory Association.

Reasons include the shift among pension funds from active to passive mandates, the huge importance of winning mandates from large public funds, the powerful role that custody plays in securing investment mandates, and M&A within the funds industry.

JPID calculates that 112 investment advisors hold 5,267 mandates worth ¥79.4 trillion ($827 billion), compared with 5,233 mandates worth ¥72.24 trillion a year earlier.

BGI has the second-largest share, with ¥13.5 trillion, followed by SSgA with ¥4.3 trillion, and Mizuho Trust & Banking and Nomura with about ¥4.0 trillion each.

Among the next five managers is: sixth-place Tokio Marine Asset Management (¥3.2 trillion), which is always in or near the top ranks; Diam (¥3.2 trillion), which has lost the most ground; Northern Trust Global Investments (¥3.0 trillion); Morgan Stanley Investment Managers (¥2.2 trillion) and BlackRock (¥1.9 trillion).

Compared with 2008 pension AUM, Sumitomo T&B's business has exploded, from ¥2.6 trillion to over ¥14 trillion. Other big gainers are SSgA, Mizuho and Northern Trust, while firms that have seen pension AUM fall include BGI, Nomura, Tokio Marine, Diam, Morgan Stanley and BlackRock.

Jo McBride, editor and publisher of the Japan Pensions Industry Database, says that in general, the pension assets under management of the 24 firms which won additional mandates during the term rose while those of the 19 which retained the same number of contracts fell as turbulent markets eroded the value of their portfolios. But there were exceptions and 10 newcomers won mandates for the first time.
 
Growth in business from government sources rose by a strong 38.56% to ¥56 trillion ($583 billion) while that from companies fell 22.5% to ¥23 trillion ($240 billion). Government business in this context means that derived from the Government Pension Investment Fund (GPIF) and the mutual aid associations which hold the pensions pots of civil servants, McBride adds.

"This huge disparity between the value of public and private sector business has arisen mostly since 2002," she explains. "Since then companies have been allowed to hand over for management by the GPIF those contributions to their employee pension schemes which were used to fund benefits that would otherwise have come from the state (the daiko henjo). Such funds are still placed under the management of advisory firms but now show up as derived from the public sector."
 
The GPIF is the world's biggest pension fund and is often referred to outside Japan as a sovereign wealth vehicle. At home there have been calls for it to be broken into smaller units that compete with each other.
 
It appears to be seven mandates from the GPIF that propelled Sumitomo Trust & Banking's stellar rise to ¥14.3 trillion but this cannot be confirmed until GPIF publishes its report for the term.
 
"Handing back the daiko is just one of the tides of change which have continuously flowed across this market since it began to be deregulated in 1995," says McBride. "Another is takeovers and mergers among both foreign and domestic asset management firms and that looks set to continue."

Trust banks have been able to maintain their lock on the custody business and are thus able to offer bundled services to pooled account customers. No figures for the year to 31 March 2009 are yet available but in the preceding period Sumitomo Trust & Banking managed ¥5.8 trillion at book value in this way, says McBride.