Vanguard Mulls Selling Funds Directly to Investors in Japan

Vanguard, the king of low-cost, DIY investing, is mulling a different tact for its Japanese business in which it could sell its funds directly to investors. David Kim, head of the Japan business at Vanguard, told Bloomberg that, as it stands, Vanguard gets only a tiny portion of its $5 trillion in assets under management from Japan, and the company wants to change that. Currently, Vanguard sells its funds only through Japanese partners and has had a tough go of it trying to break into that market in a significant manner over nearly 20 years.

"You have to think very carefully about what's the ability of an American company to come in, create a name essentially from scratch, create an infrastructure, gain clients and all that kind of thing. It's certainly not impossible," said Kim in the Bloomberg interview. "We are passionate about it but what is the right timing; what's the right approach; how do we do this in a way that will frankly be prudent for everyone involved?" He acknowledged that the company has a long way to go in those efforts and that it can grow that side of the business more.

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Vanguard has had operations in Tokyo since 2000, selling funds through local partners as well as via Saison Asset Management, the Japanese mutual fund company. Last year, in an effort to expand its market share in Japan, Vanguard inked a partnership with internet giant Rakuten's asset management unit to sell its funds. Kim told Bloomberg that Vanguard is open to inking more deals like that with local players and that the company plans to boost its headcount in the country.

Vanguard doesn't pay commissions to distributors of its products, which is a common practice in Japan, making it more challenging for the fund company. Yan Pu, head of portfolio review for Asia at Vanguard, told Bloomberg that, while Japan is a tough market to crack, the fund company is committed to the region. "That's why our Japan office is growing. We understand the headwind, but we're willing to come in to educate," he said.

Japan isn't the only country in which Vanguard is looking to expand. It is gearing up to more than double the headcount in its Shanghai location, and the fund company could be looking to gain approval to sell investment products to the country's wealthy. Citing Charles Lin, Vanguard's head in China, Bloomberg reported that Vanguard will increase its staff in China and seek approval to sell investment products before it looks to gain a foreign-owned mutual fund license, which it will be able to apply for in 2021. Lin told Bloomberg that, just like Vanguard lowered the cost of investing in the U.S., it is aiming to do the same in China and hopes to have a cost advantage over local competitors.