While already successful in its native Japan, Nomura Asset Management is looking to expand on a global scale, but are they looking before they leap? Raquel Pichardo-Allison reports
Nomura Asset Management has an image problem.
Officials at Japanese asset manager Nomura have their sights set on becoming a truly global player with a wide spectrum of product offerings and clients spread around the world. But first, they need to change their image as only a Japanese equity manager.
The firm wants to expand beyond its roots as a Japanese equity manager and plans to continue to build out its fixed income capabilities and expand its emerging markets offerings.
"I think the meaning of a global manager is a manager that has products that can be promoted to any client in the world," said London-based chairman and director Tamon Watanabe.
But one of Nomura's biggest challenges lies in its perception as a specialised equity manager, said Watanabe.
"If you hear the name Nomura, you think regional equity manager," he said.
"We'd like to develop our own capabilities in all key areas. We are an equity house, a fixed income house and we'd like to build out global credit. Global equity, emerging market equity, (etc...)," said Yoshihiro Namura, senior investment officer and managing director of fixed income at Nomura's Tokyo headquarters.
"From a business point of view, do we have a big presence in the American retail space? We don't. Do we have a retail business here in Europe? No. Do we have a big institutional presence in America? No. Do we have operation in China? No," he said.
The firm does have a substantial presence in its home region. Nomura had JPY19trn (US$200.5bn) in assets on March 31, according to the most recent details available on the firm's website. Of that, JPY6trn is run for institutions.
The vast majority of its assets come from Japanese investors, officials there said. Nomura has saturated about 20% of the Japanese asset management market and has offices scattered throughout Asia, North America and Europe.
Penny Green, chief executive at the £1.1bn Superannuation Arrangements of the University of London (SAUL) Trustee Co., and a Nomura client, said: "My first thought would be the mandate for which we appointed them - Asian equity, then Japanese equities, then global equities," she said. A year ago, SAUL hired Nomura to run a £50m Asia ex-Japan portfolio.
Watanabe said the best way to combat that image, is to show clients the numbers.
Excluding Japan, the global fixed income strategy returned 8.49% and 7.15% in the three and five year periods, besting the Citi World Government Bond Index by 119 basis points and 47 basis points, respectively.
The firm's global fixed income strategy (including Japan) returned 7.08% annualised in the three years ended June 30, and 6.10% in the five-year period. The strategy beat the JPMorgan Global Bond Index - unhedged by nine basis points and 38 basis points in the three and five year periods, respectively.
And in June 2008, Nomura lifted out the fixed income team from Proxima Alpha Investments in order to provide alpha-oriented global fixed income solutions. The New York-based team is called Nomura Global Alpha.
Investors around the world have been slowly removing their assets from cash, which provided a safe haven during the credit crunch and market volatility of the financial downturn.
But as they re-enter the markets, many are turning to fixed income, particularly the credit markets and Nomura wants to tap into this interest.
"We are getting some inquiries about global credit. We were not major players in that area before, but we are seeing enquiries from large pension funds, mainly in Asia," said Namura.
"We're seeing new demand in the credit space this year," he said.
Credit has caught the attention of risk-averse investors ready to cautiously move out of cash and seek returns.
Government bonds are delivering historically low yields, and very large new issuances are expected to fund government deficits, said State Street Global Advisors, global head of credit strategies and fixed income research William Cunningham.
Meanwhile, structured product bonds, like asset-backed securities, rely on consumer debt and do not provide manageable downside risks.
"This leaves only corporate bonds," said Cunningham. "Corporate bonds appear to offer the most compelling combination of significant return potential, stable fundamentals, manageable downside, liquidity, and principal protection of all the major asset classes that investors can look to as a first step out of cash to resurrect their portfolios."
In its quest to become a more global player, Nomura is part of a larger trend by asset managers to become multi-asset class solutions providers.
"They're not the only firm out there thinking through how to become more global," said Casey Quirk & Associates partner, Jeb Doggett.
"There's a perception among managers that investors themselves are becoming more global in their allocations... Investment managers recognise that to even compete in their home markets you need to have a more global perspective because they're up against global managers," said Doggett.
The most recent and most high-profile example is BlackRock's US$13.5bn acquisition of Barclays Global Investors.
The quickest way to become a global player is through acquisitions rather than organic growth, said Cerulli Associates, managing director of the international business Shiv Taneja.
"The worry about them seeking global dominance is how will they do it, and how do they make it stick?" he asked. Acquisitions, he said, "is the speedier option, but it's the most difficult one."
Because of their penetration in the Japanese market, Nomura has to look beyond its borders. "If they want to keep growing, they have to be outside of Japan," said Taneja.
Nomura has a history of acquisitions and lift-outs. Aside from the Proxima lift-out in 2008, last month the firm scooped up 35% of LIC Mutual Fund Asset Management Co. Ltd., a subsidiary of Life Insurance Corporation of India (LIC), India's largest life insurer.
"It's a coup. It's a massive coup," said Taneja of the acquisition, adding that LIC practically had a monopoly on the Indian market about a decade ago, but other firms have since come into play.
Watanabe said Nomura had been in discussions with LIC "for some time" and the acquisition is a sign of Nomura's belief that the Indian market is ripe for growth.
Nomura also plans to make similar moves in China, though Watanabe declined to elaborate. "We are very interested in the market," he said.
But Nomura isn't turning its back on its home market.
"My own personal outlook is that this industry in Japan is still at the beginning of its growth because Japanese investors have been so conservative about investing in equities and so forth," said Namura.
While potential growth in the institutional market in Japan is limited, the retail market is still in its early stages, said Watanabe.
The Japanese retail market is the second largest in the world, but only 4% of individuals have their assets invested in mutual funds, said Watanabe.
He estimated that amount could reach up to 10%.
"This is the kind of picture we see emerging," he said.
If Nomura succeeds in becoming a global player, it will become part of a very select group.
"There aren't many asset managers that have a truly global business," said Doggett. "Maybe a dozen."
"When an organisation is known for one competency, the easiest way (to expand) is to leverage on that core competency," said Doggett. "They're trying to develop new competencies and develop in new markets. That's twice as hard.
He said it could take years for any manager to become global. The practice must be scaled to work across multiple time zones, multiple regulatory regimes and develop extensive risk management capabilities.
Managers need to balance this transition, while ensuring existing clients are not neglected.
"We would want to know that resources used for our account are not going to be re-diverted and that growth of the manager's business was being done on a controlled basis and that they were paying close attention to capacity constraints to ensure that existing client service and performance was not compromised," said UK-based West Midlands Pension Fund, head of quoted equities and corporate governance Tony Doyle.
Nomura manages a £30m Japanese equity portfolio for the pension fund.
But officials at Nomura see their move onto the global market as a gradual evolution, not an immediate transformation.
"We have taken 20 to 30 years to develop our firm," said Namura. "We will not become a global player over night."
Smart Pension has absorbed more than 6,500 members from the Corporate Pensions Trust (CPT) after its trustees decided not to apply for authorisation.
The Defined Contribution Investment Forum (DCIF) has reappointed Vivek Roy as chairman for 2019 following a vote at its annual general meeting last November.
One of the most serious problems with GDP is that it fails to measure the impact of economic growth on the planet's finite environmental resources. As economist Kenneth Boulding once put it: "Anyone who believes that exponential growth can go on forever...