MUFG; Realizing a Leading Asset Management Center with a Global Standard System

Do you know what is the Net Asset Value (NAV) of mutual funds? To put it simply, it’s their value. It’s the standard for purchasing and redeeming mutual funds and is calculated and published daily after operating hours. In Japan, investment companies that make investment decisions and trust banks (trustee banks) that handle money calculate and confirm NAVs separately. This long-time commercial practice has impeded foreign investment management companies from making new investments in Japan. In this article, we introduce the story of the struggle of employees to change this conventional method over the course of more than five years.

Profile

Yusuke Terajima

Chief Manager

Business Promotion Group, Domestic Investor Service Business Department

Investor Service Business Division

Mitsubishi UFJ Trust and Banking

Saki Hasebe

Manager

Operational Planning

Investor Services Planning Division

The Master Trust Bank of Japan

Ayaka Sasaki

Coordinator

Investor Services Sales Division

Mitsubishi UFJ Trust and Banking

Yukiko Adachi

Vice President

Operational Planning Investor Services Planning Division

The Master Trust Bank of Japan, Ltd.

The Japanese government aims to become a leading asset management center. To do so, it’s essential to promote the advancement of the asset management industry. This requires the rationalization and streamlining of operational management and the creation of an environment that allows for the entry of new asset management businesses. One challenge was Japan’s unique commercial practice—the double NAV calculation method of asset management companies and trust banks.

The standard for trust banks in countries outside Japan is the single-party NAV calculation method. If an asset management company wanted to do business in Japan, they were required to establish a system, along with staffing to handle the double NAV calculation method, impeding their entry into the market.

“Many global asset management companies lamented to us, asking how long Japan would continue using double NAV calculation,” said Mr. Terajima, who played a central role in this project.

Solving for this issue had been a topic of discussion within the mutual fund industry for many years, but it required significant changes to be made to the systems and operational flow of asset management companies and trust banks, making it difficult to take the first step.

We can change commercial practices because of who we are.

Mitsubishi UFJ Trust and Banking (Trust Bank) and the Master Trust Bank of Japan began working together to achieve single-party NAV calculation in 2019. That’s when momentum toward advanced asset management started to grow. Mr. Terajima explained the reason for this initiative, saying, “At the time, in the mutual fund industry, from an operational perspective, there were discussions toward NAV being conducted by asset management companies as a single party if the shift to single-party NAV calculation was to be made. However, we believed we wouldn’t be able to achieve the original goal to advance asset management with this method. We considered having trust banks handle single-party NAV calculation and explored the necessary systems and workflows for them to provide these services.

However, for the Master Trust Bank of Japan, which manages mutual funds, the implementation of single-party NAV calculation was not assured to be beneficial. Ms. Hasebe, who planned the administrative work for managing mutual funds, said, “For exactly the same reason that many asset management companies were hesitant to introduce single-party NAV calculation, there were concerns about the necessity of building a new, separate system from the administrative workflow of conventional double NAV calculation and whether both single-party NAV calculation and the workflow could be implemented after the system was built.”

Ms. Sasaki, a sales representative whose customers are asset management companies, spoke about the difficulty she felt in implementing the system, saying, “Before transferring, I was handling overseas funds and understood that single-party NAV calculation was the global standard. Thus, I was in support of this effort, but when I actually joined the initiative, there were various internal and external issues and a mountain of things that had to be sorted out.”

Collaboration with asset management companies is essential to realizing single-party NAV calculation. One obstacle for asset management companies is that, since the accounting system used to calculate NAV is also used to provide data for customer reports and companies that sell mutual funds, if NAV calculation is paused, these services will be suspended. Thus, by also building a system for providing such services and through business process outsourcing (BPO) from asset management companies, The Master Trust Bank of Japan can provide one package including these services and NAV calculation. Furthermore, as a means for guaranteeing accurate NAV, a system was built in which the Master Trust Bank of Japan provides a verification report to asset management companies after calculating the NAV so the companies can confirm it.

Throughout the planning meetings, there was a phrase often used by participants: “The system must contribute to the protection of beneficiaries.” Ms. Adachi from The Master Trust Bank of Japan said, “If we can achieve single-party NAV calculation, it will immediately reduce costs for asset management companies. However, our goal is only to increase the number of investment products and the number of selections available to the beneficiaries, the investors. We must prioritize a system that will not be detrimental to beneficiaries. The frequency at which this concept was shared was reflective of MUFG’s values.”

The long journey of contributing to customers continues.

In December 2022, the Trust Bank started collaborating with JAMP Fund Management and announced it would introduce single-party NAV calculation for the mutual funds it establishes and manages. It has been two years since the start of Japan’s first framework. After implementation, there were no major issues reported and moves to follow suit began to arise, indicating that the movement to adjust to the global standard will accelerate.

Ms. Sasaki said, “In order for new asset management companies that are considering entering the market and foreign asset management companies that we oversee consider the Trust Bank as a viable option, we must provide added value.” Ms. Adachi rolled up her sleeves, saying, “Therefore, it is our duty to provide financial infrastructure that’s long-lasting. Going forward I will think of a system for sustainable operations for everyone in charge of the business.”

Ms. Hasebe states, “I will swiftly establish systems and operations that benefit asset management companies and beneficiaries, while ensuring that the business operates as it truly should.”

This long journey will continue for all parties, including customers, the Trust Bank and the Master Trust Bank of Japan, the financial industry, and the establishment of a leading asset management center. Looking toward the future, Mr. Terajima says, “I realize that it’s precisely because we have constantly racked our brains in service to the asset management industry that we have gained collaboration from related internal and external partners. Going forward, our goal is to reach a BPO mutual fund balance of 100 trillion yen by developing a model including BPO, with single-party NAV calculation as the starting point.”

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Overcoming Commercial Practices to Contribute to Realizing a Leading Asset Management Center with a Global Standard System

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We can change commercial practices because of who we are.

The long journey of contributing to customers continues.