Even temporary underperformance by asset managers is not being accepted by pension funds. The trend is evident even among public pension funds that have historically had low asset manager turnover.
In such a scenario, products with a record of outperformance will still have a strong tendency to draw both corporate and public pension assets, Cerulli said.
"This is an environment that favors new entrants into Japanese asset management market that have superior products and are able to establish appropriate distribution capabilities through sub-advisory to Japanese asset managers," said Sadayuki Horie, senior researcher at NRI.
Additionally, pension funds' investment horizons appear to be getting shorter.
"Pension funds have traditionally replaced underperforming managers every five years, but may now do so every three years," said Yoon Ng, Asia research head.
According to Cerulli, institutional investors represented more than half of the Japan’s fund industry, which manages ¥432 trn ($4.2trn) in assets on 31 March. The remainder of assets was split equally between retail assets and assets invested by foreigners.
Out of the institutional assets, the largest investor segment is pension funds, with ¥174trn assets managed by external managers, which accounts for 79% of institutional assets.