In tough market conditions, the Japanese group is restructuring the shape of its asset management business.

As asset management faces harsh pressures on margins, one of the largest financial groups in Japan says it is restructuring this side of the business to build scale.

Sumitomo Mitsui Trust Holdings has decided to split asset management functions from Sumitomo Mitsui Trust Bank and meld them with one of its companies to expand its investments business.

The functions will be integrated with Sumitomo Mitsui Asset Management, or SuMi TRUST AM. Asset management seen as a growth business for the Japanese group, it said in a statement yesterday. Changes will start from 1 August; integration will complete next year.

“With the continued harsh asset management environment of low interest rates worldwide, and increasing price volatility in a wide-range of assets, etc., for clients of all sizes, from individuals and corporations to institutional investors, there are increasing expectations on asset management companies to provide stable and high-quality investment returns, and the provision of products that contribute to future asset-formation primarily through medium- to long-term investment has become an important social mission for asset management companies.” SuMi TRUST said.

“As a new asset management company that boasts of being among the largest in scale in Japan, the new company will focus on development of asset management products that will allow clients to entrust, with peace of mind, their medium- to long-term asset formation, and will aim to be an asset management company that has nationally well-known brand power, with recognition from many clients that `SuMi TRUST AM is the most reliable partner in medium-to long-term investment,” it said.

Overall assets under management the parent Japanese group, as of the end of March this year, is $464 billion; non-Japanese clients’ AuM in total is $11.7 billion.

It is also not clear at this stage if the changes will result in job losses.

The world’s asset management industry has been squeezed by a number of forces: the rise of low-fee, index-tracking passive funds and higher regulatory and compliance costs. It is also feared that some of the rise in assets under management in recent years stems from inflated values caused by central bank money printing (aka quantitative easing) rather than true increases in wealth. 

According to a recently-released White Paper from asset management strategy consultancy Casey Quirk, a practice of Deloitte Consulting, the industry is likely to experience “the largest competitive re-alignment in asset management history” through merger and acquisition activity from 2017 to 2020. According to its new Investment Management M&A Outlook, Skill Through Scale? The Role of M&A in a Consolidating Industry, Casey Quirk expects strong merger and acquisition activity in 2017 with a continued historic pace of deals through 2020.