This content is from: Home

High Fidelity

Bill Wilder has built a thriving Japanese retail equity business for the fund giant since the Big Bang in 1996. But can he successfully sell the rest of the firm's product line?

In the early 1970s, Yasuo Kuramoto dialed up the CEO of an Osaka-based company he was researching, hoping to arrange an interview. When Kuramoto said that he represented Fidelity Investments Japan, the executive asked, "Who?" Because locals struggle to pronounce "fi," and even a slight mispronunciation turns "Fidelity" into the Japanese word for "terrible," Kuramoto, then an equities analyst, tried a different tack: He likened his employer's name to a high-fidelity audio system. "Oh," the corporate chieftain responded, "so you're with a music company?"

Communications didn't get much easier for Kuramoto, who opened Fidelity Japan's Tokyo office back in 1969, or his small band of colleagues for decades. Until 1996 the only permitted activity for a foreign fund manager was to analyze Japanese stocks for overseas investors, so the Fidelity name did not become very well known outside financial circles. Kuramoto and his fellow analysts had to keep plugging away at their corporate introductions. Their research, meanwhile, was sent abroad to benefit the clients of Fidelity Japan's parent, Boston-based fund giant Fidelity Investments.

Nothing has quite matched the expectations of Fidelity and its foreign rivals in Japan. In 1996 they thought that Japan's Big Bang -- the financial deregulation that finally permitted foreigners to sell investment trusts and compete for pension fund business locally -- would bring them a pile of new assets. It didn't. Predicted to triple in size, to $1.4 trillion, within three years, the market for investment trusts, Japan's equivalent of mutual funds, has been victimized by the country's anemic economic growth and weak share prices: Through late 2003 it totaled $349 billion. The defined contribution market, which some forecast would quickly become the world's third biggest behind the U.S. and the U.K., has amassed little money, its growth stalled by the lack of tax incentives. Both markets have fallen so far short of projections that in 2001, Fidelity canceled its purchase of the 25,000-square-meter site where it had planned to build a back-office facility to handle the anticipated surge in Japanese activity.

And yet Fidelity, without much fanfare, has managed to carve out a thriving retail fund business in a consumer finance marketplace few foreigners have cracked. It has gathered by far the most local assets of any of the dozen or so major foreign firms that started selling their funds back in 1996. To date, Fidelity has snared $8.8 billion in retail assets, well ahead of No. 2 Goldman Sachs Asset Management Japan's $5.6 billion and the $2.8 billion pulled in by No. 3 J.P. Morgan Fleming Asset Management (Japan). Fidelity these days is even giving Japanese firms a run for their money: It's now the seventh-biggest retail fund company in the country, larger than native giants like Nippon Life Insurance Co.'s Nissay Asset Management Corp. ($7.9 billion) and Tokyo-Mitsubishi Asset Management ($5.8 billion).

Unlike most of his rivals, 53-year-old Fidelity Japan president Bill Wilder plunged right into the marketplace back in 1996, selling Japanese equity funds to local investors. At the time, most of the foreign firms arriving in Tokyo had decided, more cautiously, to pitch investors on their expertise in U.S., European and Asian stocks and bonds. Fidelity's two biggest investment trusts (the fifth and sixth largest in Japan) are both local equity funds: Japan Open, with assets of $3.27 billion, and Japan Growth, with $2.85 billion. "To build a big business, you have to focus on the home market, because that's where people will put the bulk of their money," says Wilder, who has lived in Japan since the mid-1970s.

Wilder, whose firm has no branch system in Japan, persuaded local brokerages, banks and insurers to handle Fidelity products. Although Japanese financial companies are notoriously reluctant to market products for unaffiliated companies, Fidelity's name and reputation in the U.S. fund market opened doors. Its big breakthrough came in 1997 when Japan's biggest brokerage, Nomura Securities Co., agreed to sell one of Fidelity's local equity funds.

Fidelity followed up on this victory by cutting deals and offering sales support, gradually overcoming distributors' resistance to selling its funds. One example of Fidelity's flexibility in working out distribution deals: Japan's third-biggest broker, Nikko Cordial Securities, agreed early in 2003 to distribute its first Fidelity fund after the fund giant devised what it says is Japan's first back-end load. As a result, Nikko clients will be able to avoid the typical 3 percent up-front fee. Today Fidelity's 34 investment trusts, which have helped themselves by delivering generally solid returns, are currently available through 116 banks, brokerages and insurers.

"Brand recognition among distributors is high," says Fidelity's head of product development, Takashi Hiroki. "Even though retail investor Mr. Wa-tanabe doesn't know Fidelity, we don't care, because Nomura knows Fidelity, and Mizuho Bank knows Fidelity. That's the key." Shinji Naito, a senior business development manager at local competitor Sparx Asset Management Co., says, however, that today's retail customers are aware of the firm's brand: "Fidelity is almost everywhere. Most banks have its products on their shelves, and ordinary Japanese are exposed to the Fidelity name even in remote rural areas."

Fidelity's success stands out because so many other financial firms have stubbed their toes, or worse, in arranging distribution or selecting the right products for Japan's retail marketplace. Merrill Lynch & Co., for instance, bought failed brokerage Yamaichi Securities Co. in 1998, hoping to use the Japanese firm's 33 branches as a platform to sell its funds and other products. Hit by the Nikkei's subsequent 50 percent drop, much of Merrill's Japanese operation was shut down in late 2001. Its asset management arm, Merrill Lynch Investment Managers, which runs about $2 billion in local retail funds, stands in sixth place in local fund rankings. Meanwhile, Goldman Sachs briefly became Japan's second-biggest investment trust manager in 1998, based on the $9.45 billion in assets its global bond funds had attracted, according to fund researcher Lipper Japan. A year later the fund's assets plunged to $4.73 billion after its broker distributors started pushing clients out of bonds and into a stock market rally. Today the Goldman bond funds hold just $1.43 billion.

Aside from J.P Morgan Fleming, Goldman and Merrill, Fidelity's other main foreign competitors are Alliance Capital Asset Management (Japan), Franklin Templeton Investments Japan and Crédit Agricole Asset Management Japan. They have all attracted more than $2 billion in local retail assets, but they lag behind Fidelity mostly because they didn't get a successful local equity fund, like Japan Open or Japan Growth, off the ground right after the Big Bang. Says Sparx's Naito, "For the foreign institutional market, there are many companies like Alliance Capital and J.P. Morgan Fleming, but on the retail side, it's clear that Fidelity has an advantage."

Other firms, like Barclays Global Investors, with $80.2 billion, Prudential Asset Management Japan, with $34 billion, and State Street Global Advisors, with $32.3 billion, have been extremely successful in Japan since 1996, but not in the retail market. Barclays and State Street sold their expertise in passive investing to institutional clients, and Prudential has gathered assets through its insurance business. Merrill Lynch and Meiji Dresdner Asset Management Co, a joint venture formed in 1998 between Germany's Dresdner Bank and Meiji Mutual Life Insurance Co., have meanwhile proven particularly strong in the pensions segment, picking up $15.5 billion and $14.1 billion, respectively.

All told, Fidelity Japan now oversees $35.5 billion in assets, including $13.5 billion in Japanese funds it manages for overseas investors, an $8.1 billion pension business (see box) and much smaller amounts in discretionary accounts, variable annuities and offshore funds. The sharp increase in sales of its retail funds in Japan and abroad has helped the firm multiply its assets sixfold in the past five years. Perhaps most importantly, says Wilder, the operation has been "emphatically profitable" since 1999. (He declines to say just how profitable the Japanese unit of the private firm is.)

The success of the retail equity fund business has prompted Wilder, Kuramoto, now Fidelity Japan's vice chairman, and their 300-plus Tokyo colleagues to raise their sights. "Ned Johnson doesn't want a niche business," Wilder explains, referring to Fidelity's chairman. Wilder's goal is "to be the largest asset manager in Japan -- bar none." His target is $50 billion in total Japanese assets by 2005 and more than $100 billion by 2012.

Japan is Fidelity's top priority in Asia, says Brett Goodin, president for Asia-Pacific, who relocated the regional headquarters from Hong Kong to Tokyo in May. "The reason I'm sitting here is that Japan is without doubt a massive opportunity for us, the clear No. 1 in Asia," he says. The objective: attracting a chunk of the estimated $6.5 trillion in investable household assets sitting in cash or low-yielding deposit accounts at banks. If Fidelity can attract more of this money, Goodin says, Japan will soon surpass the U.K. as the firm's second-biggest market after the U.S. At the end of September, Fidelity's U.K. operation managed $53.8 billion, still well above Japan's $35.5 billion but growing less quickly. "The real question is how long it's going to take us," says Goodin. "Is it a three-year goal or an eight-year goal? I don't know."

Even if it reaches Wilder's $100 billion target, however, Fidelity, currently Japan's eighth-biggest asset manager, will still lag well behind Japan's leader, Nomura Asset Management Co., with $144 billion. Wilder can't cut into Nomura's huge advantage simply by selling more equity funds; he needs to successfully distribute more of Fidelity's products, particularly fixed-income funds. Just 3 percent of the firm's total assets reside in such funds, even though Japan's rapidly aging society is increasingly seeking the safety of bonds. Wilder concedes that Fidelity Japan's portfolio is out of balance. His ultimate goal, he says, is to have 30 percent of its assets in bonds.

But to achieve that sort of balance, Fidelity has to persuade individual distributors to offer more than one or two of its funds. Japanese financial institutions still prefer to push their own funds or those of their affiliates, and opportunities to win new shelf space in Japan's increasingly mature fund marketplace are rare. A Tokyo-based management consultant with a leading global firm sums it up: "Fidelity faces a hard slog."

WILDER ARRIVED IN TOKYO IN 1968, A YEAR before Kuramoto opened Fidelity's doors there. The 19-year-old U.S. Army soldier had been shot in the thigh in Vietnam and shipped off to a small U.S. military hospital in Oji, a northern district of Tokyo, for treatment. During his convalescence he fell in love with the Japanese woman he later married. Wilder, who describes his unscheduled trip to Japan as a matter of "fate," is passionate about his adopted country.

After leaving the military and returning to the U.S. with his new bride, Wilder attended tiny Eastfield College in Mesquite, Texas, near Dallas, graduating with a specialty in digital electronics in 1976. Shortly afterward he returned to Japan, where he worked as an engineer at Hewlett-Packard Co., Fujitsu and Western Electric Manufacturing Co. (now Lucent Technologies) and learned to speak fluent Japanese. In 1985 he joined Schroder Securities (Japan) as an electronics analyst. Seven years later Fidelity, which by then had about 40 employees in Tokyo, hired him as director of Japanese equity research. Wilder was named to head the unit in 1995, just as Japan was about to open its doors to foreign funds.

Wilder's long experience with local business and culture no doubt made his bold decision to sell domestic funds to Japanese investors much easier. "We felt we knew what we were doing, that we knew corporate Japan and how it works," he says. Still, his decision was controversial within Fidelity. "People said, 'Nobody will buy a Japanese equity product from a foreign house; no broker will distribute a foreign firm's domestic equity fund,'" he recalls. "I didn't believe that. We didn't accept the status quo."

In fact, Fidelity's status as an outsider gave it some advantages: It hadn't been sullied by the disastrous Japanese equity fund investments of the late 1980s and 1990s, and because it wasn't part of a Japanese conglomerate, or keiretsu, it had no conflicting affiliations and could approach any Japanese brokerage, bank or insurer for distribution.

To some investors, the foreign firm has provided a welcome break from local practice by sticking to consistent investment themes. Nobuyuki Fujiwara, a market analyst with fund-rating firm Lipper, says Fidelity has impressed him by "promoting its funds at the right time and when the market is very good." In contrast, Japanese brokers and fund companies are famous for abrupt changes in product promotions.

Wilder's Japanese initiative owes much of its success to Nomura, which in 1997 signed on to become the exclusive distributor of the Japan Growth fund. Nomura's decision to handle funds from Fidelity and a number of other foreign firms was a shocking departure from traditional practice. "It transformed the market for investment products in Japan and allowed foreign firms to compete," says the Tokyo-based management consultant.

A Nomura spokesman explains that the brokerage had decided to "use our open-architecture strategy at that time" and wanted to distribute a wide range of products to clients. "It is good for our customers to have the choice to select from several growth funds, for example." Nomura made similar agreements with Goldman and J.P. Morgan, among others, but neither Goldman nor Morgan benefited as much from their distribution deals because they weren't offering domestic equity funds the way Fidelity was.

Nomura's distribution clout was soon evident. From a measly $2 million in assets in 1997, Japan Growth has expanded to nearly $3.3 billion and become one of Fidelity Japan's two flagships (along with Japan Open). But Nomura wasn't the fund's only advantage: Japan Growth, run by well-respected portfolio manager Jay Talbot, a ten-year Fidelity Japan veteran, has recorded an average annual return of almost 4.7 percent for the five years through December, compared with a paltry 0.36 percent rise for the benchmark Topix index.

The two funds got a huge boost in 1999, when a short rally in Japan's beleaguered stock market prompted a quick surge in the popularity of equity funds. Japan Growth rocketed 99.6 percent higher that year (versus 59.7 percent for the Topix), while Japan Open surged 106.6 percent. Assets at the two funds exploded more than 12-fold in 1999, to $6.16 billion.

Wilder has continued to fill out his local equity fund product line over the past six years by launching 12 more domestic funds that collectively invest in everything from Japanese specialist technology to financial services to consumer products and slice the local market by capitalization, quality and value. These funds, together with Japan Growth and Japan Open, hold the vast majority -- roughly $7.9 billion -- of Fidelity's Japanese retail fund assets. Much of the rest of its retail money is scattered among ten foreign equity funds, eight fixed-income funds and two cash funds. Another success for the firm: variable annuities. Over the past two years, 13 local insurers have chosen Fidelity funds as an investment option for their annuity clients, increasing assets by $1.5 billion.

TO FULFILL ITS AMBITIOUS GROWTH PLAN IN JAPAN, Fidelity must crack the bond fund market, where it lags well behind industry averages. About 52 percent of the $349 billion public trust market is invested in bonds; well above Fidelity's 3 percent. Although Wilder's big bet on domestic equities has worked out, fixed income has suffered from the lack of attention.

It's hard to overestimate the opportunity that Fidelity is missing. Not only do bonds represent more than half of the retail fund marketplace, but corporate pension plans on average keep 35 percent of their assets in fixed income. Those portions are sure to increase as the percentage of Japan's retirement age population rises from about 18 percent currently to an estimated 28 percent in 2025, acknowledges Takeshi Okazaki, Fidelity's head of institutional sales. For example, Japan's giant, state-run Government Pension Investment Fund, which oversees more than $252 billion in assets, plans to increase its fixed-income allocation from 59 percent to 75 percent in the next few years to prepare for the coming surge in retirements.

"We have to have fixed-income products," sighs Okazaki.

It's an embarrassing and frustrating situation for Fidelity Japan and its parent, which happens to be the world's fourth-biggest fixed-income money manager. Fidelity's $310 billion in global fixed-income assets rank behind only Pimco, Vanguard Group and Franklin Templeton Investments. And Fidelity's global and U.S. bond funds have posted top-notch returns. According to data provided by Lipper, more than 95 percent of Fidelity's U.S.-managed retail fixed-income funds ranked in the first or second quartiles over both the one- and three-year periods through October. Fidelity's London-based bond funds available to Japanese investors all ranked in the first or second quartiles during that time, according to Standard & Poor's.

In part, Fidelity is paying a price for its success in stocks. "Japanese investors think Fidelity is an equity growth manager," says a Japanese fund consultant. "They don't think Fidelity is good at managing fixed income." Asia-Pacific chief Goodin concedes that the firm has a communications problem. "We've done a less than adequate job of getting across the point that we're one of the largest fixed-income managers in the world," he says. "Clients like to think of fund managers in a certain box. It's very hard to convince people that you can be good in multiple asset classes, which is what we are aiming for."

Another handicap: A tardy Fidelity did not tailor its bond offerings to meet the investment criteria of Japanese pension fund sponsors until June 2002; before that, products were limited to international funds that included a Japanese bond component. But plan sponsors view Japanese bonds as a separate asset class and don't want them in a global offering. Fidelity finally launched a pilot global fixed-income fund, the Fidelity Foreign Bond Fund, which excludes Japanese debt, 20 months ago. Because Japanese pension sponsors usually require a three-year track record before investing, Fidelity will now have to wait at least another 16 months before it can hope to draw significant inflows.

Fidelity got an earlier start in the retail market, where it launched three fixed-income investment trusts over the course of 1997 and 1998 -- the U.S. High-Yield Fund, the Strategic Income Fund and the High Yield Open Fund. None has been a huge hit: Although the U.S. High-Yield Fund has gathered a respectable $888 million, the Strategic Income Fund, which invests in a mixture of U.S. government and high-yield bonds along with non-U.S. investment-grade and emerging-markets debt, holds a paltry $37 million, and the High Yield Open fund has only $88 million.

In contrast, Kokusai Asset Management Co., Japan's tenth-biggest asset manager, has attracted more than $13 billion to its seven-year-old Global Sovereign Bond fund -- much of it in the past 18 months. The fund recorded an average annual return of 11.3 percent in the three years through the end of November, comfortably beating the 9.8 percent annual return of its benchmark, Citigroup's world bond index. But Kokusai, which like Fidelity relies on third-party distributors, has gradually built up a sales network of 143 financial institutions that is pushing its bonds to retail clients, says a bank sales executive. Fidelity's bond funds are available at only a fraction of that number of outlets.

Wilder, for his part, doubts the staying power of Kokusai's bond fund: "I don't think it's sticky. If interest rates change -- and at some point interest rates are going to change -- that would pose a threat to the fund."

In April, Fidelity launched its Investment Grade Bond Fund, a U.S. bond fund that, like Kokusai's Global Sovereign fund, invests in top-grade corporate credits and gives retail investors the option of monthly or annual income distributions. The fund is distributed by two regional banks -- Kanto Tsukuba Bank and Senshu Bank -- in large part "because regional banks do not have such a strong prejudice against Fidelity as a fixed-income manager," says a senior Fidelity executive. Through October the two banks had raised just $74.7 million in assets for the fund.

Although they've made more inroads than most of their local and foreign competitors, Fidelity's 30 salespeople have no choice but to keep patiently chipping away at distributors' reluctance. The firm's distribution network is wider than it is deep: Many of its 116 brokerage, bank and insurer distributors sell just one Fidelity fund. "We need to get second and third funds on the shelf," Wilder says.

Getting these individual distributors to take more funds is critical if Fidelity is to find a market for the raft of new product introductions it already has under way in Japan. Last year, for instance, Fidelity began to offer 24 Luxembourg-registered European funds -- covering everything from sectors to countries to European small caps and growth vehicles -- managed by Fidelity International's London office and sold to investors in the U.K., Europe and Asia. By importing the expertise of Fidelity's offshore team, Wilder believes that the global asset manager can bring even more of its massive resources to bear in the Japanese marketplace. To date, however, these funds don't have a significant distributor, though Wilder says he's close to nailing down an agreement with a major brokerage.

These aren't easy deals to pull off in Japan's increasingly tight funds marketplace: Most banks now offer customers product suites of about 30 mutual funds. Fidelity has to wait for the annual or semiannual beauty pageants, when the banks select a handful of new products. But even if an outside firm's product might make a good fit, the banks often choose one from an affiliate. "Affiliated products still dominate bank offerings by four to five times those offered by independents such as Fidelity," says the Tokyo management consultant. "Getting additional space is very hard work."

Fidelity has made some significant recent breakthroughs with Japan's biggest and most powerful brokerages -- most notably, the groundbreaking Nikko Cordial deal for the Japan Advantage Fund. "Japan's three major brokers now each distribute a major fund for Fidelity," says the firm's vice president of marketing, Brian Henderson. It's virtually impossible to succeed in Japan's fund market without the aid of Nomura, Daiwa Securities Group (which sells three Fidelity funds), and Nikko. Nikko has generated $458 million in assets for the Advantage fund in the past year or so. The fund's previous bank distributors had brought in just $56 million.

"My goal is to get one new product a year onto the shelves of each of the three major brokers," says Yukitaka Hirao, deputy general manager of Fidelity's brokerage distribution. "Two years from now our product lineup will look very different. We will have foreign bonds and foreign equity [on the shelves]."

To begin to close the gap with Nomura Asset Management and its $144 billion, however, will require many years of new distribution deals, particularly for Fidelity's bond offerings. "We have put buckets under every dripping tap there is," says Goodin. "We're now just going along trying to squeak open those taps a bit. Some of the drips are going to turn into really steady flows." In Japan, as Fidelity has learned since 1969, it's hard to figure out which drips -- and when they'll start to flow.

Fidelity races into the lead
Top ten foreign managers by mutual fund assets in Japan

Assets ($ billions)
Manager19972003
Fidelity Investments Japan 0.594 8.888
Goldman Sachs Asset Mgmt Japan 6.625 5.637
J.P. Morgan Fleming Asset Mgmt (Japan) 1.194* 2.858
Alliance Capital Asset Mgmt (Japan) 3.157 2.832
Franklin Templeton Investments Japan** ? 2.471
Merrill Lynch Investment Managers 1.263† 2.068
Crédit Agricole Asset Mgmt Japan** ? 2.047
Citigroup Asset Mgmt Co.** ? 1.969
Deutsche Asset Mgmt (Japan) 0.813 1.63
AIG Global Investment Corp. (Japan) 0.551†† 1.086
* Assets held by Jardine Fleming Investment Trust & Advisory Co., now owned by J.P. Morgan Fleming Asset Management (Japan).
** In 1997 the firm did not rank among ITA's top 40 foreign managers.
† Assets of Mercury Investment Trust Management Co., which Merrill acquired in 1997.
†† Assets of AIMIC Investment Management, American International Group's joint venture asset management company with Mitsubishi Trust and Banking Corp. AIG bought out Mitsubishi's 50 percent stake in 2001.
Sources: Asia Agenda International; Investment Trusts Association, Japan.

Fidelity "comes to its senses" on pensions

Winning an asset management mandate from Japan's giant, state-run Government Pension Investment Fund is usually cause for celebration: The prestige it confers often leads to new business from corporate pension funds. Yet when the GPIF selected Fidelity Investments Japan to run an equity portfolio last August, the mandate represented a tacit concession by the U.S.'s biggest money manager to the painful realities of Japan's pension market.

Since 1996, when Japan first allowed foreign firms to manage local pension money, Fidelity had declined to compete for mandates from the GPIF, which, with more than $252 billion in assets, is the biggest pension fund in Asia. The money manager argued that the wafer-thin fees the public fund pays -- 10 to 15 basis points, roughly half what the firm typically gets for an equity mandate -- didn't allow Fidelity to provide its customary level of performance and service.

Those days are over. In 2002 the government of Prime Minister Junichiro Koizumi decided to allow corporate sponsors to give back to the GPIF so-called daiko henjo -- pension money they had been collecting from their workers and running on the government's behalf for nearly 40 years. The companies had been required to dip into their own profits to make up any funding shortfalls, and these had grown dramatically as Japan's stock and real estate markets shriveled in the 1990s and early 2000s. In Japan's torpid economy the bite out of corporate profits had proved too much.

As a result, the $467 billion corporate pension market is expected to send $120 billion back to the GPIF by the middle of this year. The shift of so much cash forced Fidelity to reconsider its stance on the public pension fund. "We had to go to where that money was going," says Fidelity Japan chief Bill Wilder of the firm's about-face. "Public pension fees are extremely low, but to compensate for that, they give you fairly large mandates."

Until recently, Fidelity's strict approach to fees -- it also declined business from corporate pension sponsors demanding big discounts or changes in the firm's investment style -- didn't hurt much. Starting from scratch eight years ago, Fidelity has grown into Japan's tenth-biggest corporate pension fund manager, with $7.45 billion in assets (of its $35.5 billion Japanese total), and counts more than half of the country's top 200 corporations as clients. Wilder won't specify the amount, but sources say the GPIF's public pension award started at just under $500 million and was expected to rise gradually.

"Had it been more flexible on fees," Fidelity would have a much bigger pension portfolio, says one foreign pension consultant, who sees the mandate from GPIF as a sign that Fidelity "has come to its senses."

The realm of the senses has its limits, however. The bulked-up GPIF plans to place added emphasis on fixed-income and passive equity investments, both of which pay out less than the 10 to 15 basis points active equity managers get. By 2008 the GPIF aims to build its fixed-income allocation from its current 52 percent to 68 percent, while cutting its Japanese stock holdings by half, to 12 percent.

Fidelity faces other challenges. Although the Nikkei rallied by more than 21 percent in 2003, it has still lost nearly 45 percent of its value since 1995, putting pressure on all active equity managers to justify their services. At the same time, Japan's corporate pension sponsors increasingly want to diversify into alternative assets, forcing money managers to plow resources into new products.

All of these changes have prompted Fidelity to become more flexible. Not only is the firm vying for public mandates, it has also begun marketing itself to small and medium-size corporate pension funds.

And it has unleashed a slew of new products designed to appeal to different segments of the institutional marketplace. In June 2002, for instance, Fidelity introduced a pilot global bond fund for pension sponsors (see story). In March of last year it unveiled a market-neutral hedge fund focused on U.S. stocks; in August it followed up with a Japanese version. The firm launched a real estate investment trust focused on U.S. properties in December. Fidelity has high hopes for the REIT -- its first real-estate-related product for Japan -- because local investors like income-producing vehicles.

Such moves have helped Fidelity's pension business to continue growing. Over the past three years, the firm's corporate pension assets have increased by nearly 26 percent, compared with a roughly 29 percent gain for the retail funds sector. Fidelity expects net inflows of more than $1 billion this year.

Fidelity executives maintain that they haven't strayed from their core competencies to win accounts in Japan. Unlike many rivals, they note, Fidelity refused to offer balanced mandates in the late 1990s when corporate pension sponsors were demanding them. At the risk of losing business, Fidelity insisted that it was an active equity specialist. The firm labored for more than a year to win its first Japanese corporate pension account, from electronics maker Hitachi, in June 1996.

Takeshi Okazaki, Fidelity's head of institutional sales, contends that the firm's steadfastness has started to pay off: Fidelity recently won a new active equity account from a company that had unsuccessfully asked the firm to run a balanced fund back in the late 1990s. Okazaki says that the executive in charge of the plan "came to hate the non-Japanese asset managers who said they could do everything: balanced, fixed income, equity. He says now that if they say they can do everything, it means they have no core competency." -- K.H.