In a move to tap Japan's huge pool of consumer savings, T. Rowe Price Associates Inc. signed a letter of intent with Sumitomo Bank Ltd. and Daiwa Securities Co. Ltd. to acquire a 10 percent stake in a newly formed money management firm, the companies said yesterday.
The Baltimore-based mutual fund company will invest $16 million in the firm, which will start out with $29 billion in assets currently managed by Sumitomo and Daiwa, Japan's second-largest bank and brokerage, respectively.
"The Japanese market is an enormous financial market," said George Roche, Price's chairman and president. "This just leverages our opportunities. This is a long-term strategic investment."
U.S. mutual fund companies, banks and securities firms want a slice of Japan's savings market as the country's government deregulates its financial system.
Japan, which allowed banks to offer mutual funds to investors for the first time in December, has about $10 trillion in personal savings, second only to the United States, which has about $22 trillion in savings.
Most of the savings in Japan is invested in low-yielding bank accounts, and only 4 percent is in mutual funds, said Todd
Ruppert, a managing director at Price, who helped negotiate the deal.
"Everybody is trying to get access to this channel," Ruppert said.
Citigroup Inc., Putnam Investments and J. P. Morgan & Co. are all forming alliances with Japanese firms to get a jump on deregulation, which has been dubbed the "big bang."
The new joint venture company, which has yet to be named, is to begin operating April 1, and is to be based in Tokyo.
Price's partners are among Japan's financial elite. Sumitomo has more than $300 billion in deposits, and Daiwa is the largest distributor of mutual funds in the country.
The two companies have about 475 branches throughout Japan. Price is the 10th-largest mutual fund company in the United States, with about $148 billion in assets that it manages.
"It is a big deal; I like it," said Henry H. McVey, a mutual fund analyst at Morgan Stanley Dean Witter in New York. "The deal gives T. Rowe access to another market that is heavily focused on retirement savings. Not only that, it gives T. Rowe distribution through some very solid and reputable firms."
Shares of Price were unchanged yesterday at $32.
As part of the transaction, Price will form a 50-50 joint venture with London-based Robert Fleming Holdings Ltd. to manage money raised by Sumitomo and Daiwa from investors who want to make investments outside Japan.
Price and Robert Fleming Holdings have worked together since 1979, when they formed a joint venture that manages $30 billion for U.S. investors in overseas assets.
McVey said Price was selected as a partner because its mutual funds have a strong brand name and have performed well, and because the firm's management is "conservative, yet entrepreneurial."
"They have demonstrated their willingness to make joint ventures work," McVey said. "That is not commonplace in financial services."
Roche said Price was approached by Sumitomo and Daiwa several months ago. The firm had a relationship with Sumitomo, managing a $260 million portfolio for Meiko Securities, which the big bank controls, Ruppert said.
"T. Rowe is perfect for us in terms of global asset management capability and product development," Sumitomo President Yoshifumi Nishikawa told Bloomberg News.
McVey said there are plenty of challenges facing Price and its partners.
"You have got to educate the Japanese investors on mutual funds, and diversifying outside the local Japanese markets," he said. "This is not a one-night success story."
Pub Date: 1/26/99