Nikko Asset Management's goal of becoming more relevant to overseas investors remains a work in progress, but the Tokyo-based manager's domestic business has been picking up steam, the firm's top executive said.
In recent years, the “real game-changer (for Nikko's business) has been our success with Japanese financial institutions,” including regional banks, insurance companies and trust banks, said CEO Takumi Shibata in a March 29 interview.
As of Dec. 31, Nikko was actively managing ¥4.4 trillion ($39.6 billion), or 22% of the firm's ¥19.93 trillion in total assets for local institutional investors. That was up from ¥3 trillion, or 15% of the total, at the close of the March 31, 2015, fiscal year, a spokeswoman said. She declined to provide net inflow figures.
The recent growth of Nikko's domestic business has been driven, in part, by institutional investor efforts to seek alternatives to investing in benchmark Japanese government bonds yielding next to nothing now, said Mr. Shibata. (In Tokyo trading on April 10, JGBs were yielding 5.2 basis points.)
But it also reflects the firm's willingness to anticipate the needs of clients, and invest in the capabilities required to meet those needs, he said.
As an example, Mr. Shibata pointed to Nikko's three-year effort to develop a database of 500 Tokyo Stock Exchange first-section-listed companies offering the greatest scope for value creation through engagement on environmental, social and governance-related issues.
Likewise, the challenges facing Japanese institutional investors now appear to be hastening their embrace of other recent business initiatives, such as the global credit team of roughly 20 portfolio managers and analysts the firm assembled in London and other financial centers over the past two years, he said.
The Bank of Japan's negative interest rate policy at the start of 2016 has left clients more open to product innovation and less insistent on lengthy track records, said Mr. Shibata, citing the Danish covered bond strategy Nikko launched in May 2016 as an example. In a little under a year, that strategy has attracted roughly ¥175 billion from Japanese institutions, he said.
Mr. Shibata's bullish view on the domestic front comes as Nikko — which under his predecessors expanded its global reach through acquisitions in Australia and Singapore — suffered a setback overseas.
On March 31, Suncorp Group Ltd., the Sydney-based financial conglomerate that sold its A$25 billion ($19 billion) money management arm to Nikko six years ago, announced a further diversification of managers for its assets under management. The announcement thanked Nikko for its “hard work and commitment.”
Officials at Suncorp and Nikko declined to offer details, or comment on reports that Suncorp's move would effectively shift billions of dollars of assets from Nikko to other managers.
In an email, Mr. Shibata called the drop in Nikko's Australian AUM “planned for and the result of a long-term and clearly communicated” change in investment strategy by one of the firm's clients.
As of Dec. 31, Nikko's actively managed AUM for institutional clients outside of Japan accounted for roughly 16% of the firm's overall AUM, down from 25% as of March 31, 2015. Australian clients accounted for roughly half of that Dec. 31 figure, or 8% of total assets.
While it's “still too early to say we are very successful overseas,” Nikko's commitment to global growth remains “core to our strategy,” said Mr. Shibata.
For the three segments of Nikko's domestic business, by contrast, Mr. Shibata said he's either very satisfied or reasonably satisfied now.
Nikko's retail fund business, with roughly 40% of overall AUM at the end of December, remains the firm's “bread and butter,” and an important source of revenues for investment in new areas, said Mr. Shibata. New products, such as the ¥525 billion global robotics fund Nikko launched in August 2015, have done well, he said.
On the institutional side, business on behalf of Japan's regional banks has been a “great success” for the firm over the past year or two, while the third segment — major financial institutions including insurance companies and giants such as the ¥2 trillion Japan Post Bank and the ¥1.4 trillion Government Pension Investment Fund — has enjoyed a “reasonable degree of success,” he said.