Let Asset Managers Get Back to Asset Management

Why standardizing Japan’s middle- and back-office infrastructure is essential to investment capabilities, product innovation and genuine competition

In last week’s column on Japan’s Basic Policy on Economic and Fiscal Management and Reform 2026 and the government’s financial strategy for promoting growth investment, I argued that the government should make strategically important projects investable for private capital, while asset managers and asset owners should evaluate those opportunities in light of the best interests of their beneficiaries.

Maintaining a clear distinction between the respective roles of public policy and the market—and preserving discipline in capital allocation—is essential to advancing Japan’s ambition to become a leading asset management center .

That argument, however, rests on an important assumption.

Are the asset management companies responsible for making those investment decisions actually able to devote sufficient people and management resources to their core activities, including company research, investment decision-making and portfolio construction?

The Most Important Message Is in the Report’s Unassuming First Chapter

On July 24, 2026, Japan’s Financial Services Agency published the Progress Report 2026 for Advancing Asset Management Services in Japan. The report covers a range of prominent topics, including corporate research, generative AI, Japan’s Emerging Managers Program and private equity funds.

The chapter I found most important, however, was the comparatively unassuming first chapter, which addresses operational instructions, fund accounting and reporting.

The report describes an operating environment in which instructions between asset management companies and trust banks are still exchanged by email or fax, while data fields and document formats differ from company to company.

It also notes that detailed fund accounting practices have not been fully standardized. Asset management companies or their business process outsourcing providers and trust banks therefore continue to calculate NAV separately and reconcile their results.

Reporting presents a similar challenge. Even for the same fund, asset managers may be required to prepare different reports for individual distributors and asset owners.

The FSA argues that administrative processes should be consolidated and responsibilities allocated appropriately so that asset management companies can concentrate on investment management.

This is not merely a proposal for improving administrative efficiency.

Investment capabilities do not depend only on the skills of individual portfolio managers. They are the product of those skills and the organizational capabilities required to implement an investment strategy as a product and provide it continuously to investors.

It is therefore not enough simply to tell asset managers to improve their investment capabilities.

The underlying operating model that prevents them from concentrating on investment management must also change. In my view, this is the central message of the report.

Operations Can Be Outsourced, but Complexity Cannot

One particularly important finding is that Japan’s problem is not simply a lack of outsourcing.

According to the report, 19 of the 22 asset management companies surveyed outsource almost all of their fund accounting activities. Nevertheless, company-specific accounting practices remain.

As a result, BPO providers and trust banks must accommodate individual requirements through end-user computing tools and operating manuals. Some providers have even established dedicated teams for individual asset management companies.

In many European and US fund structures, a specialist fund administrator will generally perform the NAV calculation. In Japan, however, a structure remains in which the asset management company or BPO provider and the trust bank calculate the NAV separately and then reconcile the results.

The same structural problem can be seen in operational instructions.

Where asset managers, BPO providers and trust banks are connected through an “N-to-N” structure using different data fields and formats, the number of possible combinations increases as the number of counterparties grows.

Even where systems are in place, missing data fields and company-specific definitions ultimately require the process to be supplemented by email or manual work.

The common issue is that the party performing the work may have changed, but the units of work and processing rules have not been standardized.

When operations are outsourced while individual specifications and exception handling remain in place, economies of scale cannot develop. The inefficiencies previously located within the asset manager are simply reproduced within the service provider.

Replacing paper with PDFs, fax with email or manual entry with Excel macros does not necessarily redesign the process. It may only make an inefficient process run slightly faster.

Digitization and standardization are not the same thing.

The consequences extend beyond higher administrative costs.

Turning a new investment strategy into a product may require the asset manager and its service providers to design separate valuation methods, accounting processes, operational instructions, asset administration arrangements, disclosures and distributor reporting.

This increases both the time and cost required to launch a fund. For smaller independent asset managers and emerging overseas asset managers, the operating burden itself can become a barrier to Japan market entry.

Investment strategies may appear to come first, with middle- and back-office functions supporting their implementation. In practice, however, the strategies that can be brought to market are often limited by what existing systems and operating processes are capable of handling.

Before investment capabilities can be delivered to the market, they must pass a test of product feasibility.

Middle- and back-office functions should therefore not be viewed merely as administrative support. They are part of the business model that determines the range of value an asset management company can offer to the market.

Standardization Redistributes Value, Responsibility and Control

Why has standardization progressed so slowly, even though many industry participants understand its importance?

The reason is that standardization is not simply a matter of aligning systems and report formats. It also changes the distribution of economics, responsibilities and customer relationships associated with the existing operating model.

A reform may be rational for the industry as a whole without producing equal benefits for every participant.

Moving to a model in which a single party calculates the NAV , for example, could reduce duplicated costs. At the same time, one party would lose work and related revenue, while the entity responsible for the calculation would assume greater responsibility for calculation accuracy, system disruptions, error investigations and potentially compensation.

Reducing total industry costs is not the same as improving the economics of every participant.

The FSA also identifies issues including responsibility for NAV calculation, cost allocation, standardization among trust banks and vendor lock-in.

The same problem applies to reporting.

Customized reports for individual distributors and asset owners create a burden for asset management companies. For the recipient, however, those reports may be a service tailored to its own administrative, oversight or distribution processes.

The party receiving the benefits of standardization is therefore not necessarily the same party that must give up the convenience of customization and modify its own operations.

The benefits of reform are also likely to be distributed across the industry over time. By contrast, the costs of system modifications, data migration, operational changes and experimentation with an unprecedented reform will be borne immediately by the first companies to act.

In some cases, existing complexity may also protect an individual company’s revenue by creating barriers to entry or switching costs that make it difficult for clients to change service providers.

It would therefore be inaccurate to attribute the lack of standardization solely to a lack of urgency or technical capability.

The rational efforts of individual companies to protect their revenue, responsibilities and customer relationships can collectively preserve inefficiency across the industry.

Standardization is ultimately a redistribution of work, remuneration, responsibility, control over data and influence over customer relationships.

For that reason, it is not sufficient to identify the lowest common denominator of existing practices and convert it into an electronic format.

The industry must first establish a common data model, clear divisions of responsibility, common connectivity rules and portability of both data and operational processes. Individual companies should then redesign their operations on that basis.

The transition costs, the body responsible for governing the standard and the process for deciding future specification changes must also be addressed.

Existing operations should not simply be standardized as they are.

The operations themselves should be redesigned from the starting point of a common standard. The order matters.

A Common Infrastructure Can Enable Genuine Competition

Japan’s asset management industry does not need merely to move existing in-house activities to external service providers.

The industry needs to reconsider which functions allow asset managers to create differentiated value and which functions should be treated as non-competitive infrastructure and standardized across the market.

Investment philosophy, company research, investment decision-making, product design, product governance and outcomes for beneficiaries are areas in which asset managers should compete.

By contrast, maintaining proprietary specifications for instruction data, fundamental investment trust accounting rules and routine reporting does not necessarily create additional value for investors.

If these non-competitive functions were standardized, and if asset management companies, trust banks, BPO providers and technology companies could connect under common rules, new entrants could compete on investment capabilities and product design without first incurring enormous fixed operating costs.

Established asset management companies could also redirect duplicated people and capital toward investment management, research, product development, data use and a deeper understanding of beneficiaries.

This does not mean that the entire industry should be consolidated into a single system or service provider. That would merely replace vertical integration within individual companies with vertical integration at the industry level.

What is needed is an open infrastructure under which multiple providers compete using common data specifications and connectivity rules, and under which data and operational processes can be transferred smoothly when an asset manager changes providers.

Competition among service providers should not be eliminated.

What should be eliminated is unproductive competition based on incompatible data formats and the handling of company-specific exceptions.

Outsourcing middle- and back-office activities also does not allow an asset manager to outsource its responsibilities to beneficiaries.

The asset manager remains responsible for selecting and overseeing its service providers, preparing for disruptions and errors, and managing the overall quality of the product.

The goal is not to create asset managers with no administrative capabilities of their own. The goal is to create asset managers that are clear about where they add value and which responsibilities they must ultimately retain .

The FSA describes this initiative as a major business transformation for asset management companies and trust banks and calls for commitment from senior management.

This is not merely a process improvement project for middle- and back-office departments.

It is a management decision about which functions a company should retain, which functions should be opened to external providers and which responsibilities the company must continue to assume.

Since JAMP’s founding, we have examined through practical experience whether investment managers can bring their investment philosophies and product concepts to market without having to build every function in-house.

Today, JAMP Fund Management provides support for Japan-domiciled investment trusts and ETFs through its ManCo-style platform functions and ETF White-Label Services. These functions are intended to provide the local product-development and operating infrastructure required in Japan while allowing asset managers to focus on investment decision-making, portfolio management and product strategy. We do not regard the FSA report as an endorsement of JAMP’s vision or of the work we have undertaken to date.

We do, however, see it as an indication that the operational problems we have encountered in practice are beginning to be recognized as industry-wide issues that must be addressed collectively.

Promoting Japan as a leading asset management center does not require the industry to place even more functions inside asset management companies.

Instead, functions that do not need to be performed by the asset manager itself should be removed from individual company structures where appropriate. The people and capital tied up in those functions should be redirected toward investment management, product design, company research and understanding beneficiaries.

Asset managers should once again be able to focus on what they are meant to do: manage assets. 

The question raised by the report is not simply how to achieve incremental efficiencies in middle- and back-office activities.

It is how to redesign the production structure of Japan’s asset management industry itself.

FAQ

What operational issues does Japan’s FSA identify?

The report discusses continued reliance on email and fax for operational instructions, differences in data fields and formats, non-standardized fund accounting practices, duplicate NAV calculations and reporting customized for individual distributors and asset owners.

Why has outsourcing not resolved these issues?

Outsourcing changes who performs an activity, but it does not automatically standardize the underlying data, processing rules or exception handling. Where company-specific requirements remain, service providers must reproduce the same complexity within their own operations.

How can operational complexity become a barrier to Japan market entry?

A new investment strategy may require individually designed valuation, accounting, operational, disclosure and reporting arrangements. The associated time, cost and local infrastructure can create a significant barrier for boutique managers and overseas asset managers entering Japan.

Does outsourcing remove an asset manager’s responsibility?

No. An asset manager remains responsible for selecting and overseeing service providers, managing operational risks, responding to errors and disruptions, and maintaining the overall quality and governance of the investment product.

Author: Keiichi Ohara, President & CEO, JAMP Corporation
About This Article
This article is an adapted English edition of JAMP Perspective No. 344, originally written in Japanese by Keiichi Ohara and distributed on August 5, 2026. It has been edited and supplemented where necessary to make the discussion and its Japan-specific context clearer to readers outside Japan. It is therefore not a direct translation of the original Japanese newsletter.
This article is provided for informational purposes only and does not constitute investment advice or a recommendation regarding any financial product.