Asset Management

Japan Investment House Nikko Plays on Specialist Strengths

Tom Burroughes Deputy Editor London June 20, 2008

Japan Investment House Nikko Plays on Specialist Strengths

It is perhaps not surprising that a Japanese-owned investment firm which specialises in Japanese stocks takes an upbeat view about the world’s second-largest economy.

It is perhaps not surprising that a Japanese-owned investment firm which specialises in Japanese stocks takes an upbeat view about the world’s second-largest economy.

But even the patience of Nikko Asset Management must have been tested by more than a decade of sluggish growth. So far this year, markets have not done much to silence doubters: the MSCI Japan Index of stocks is down by 1.46 per cent since the start of January, although not nearly as poor as the MSCI World Index of developed nations’ shares, which is down by more than 8.3 per cent over the same period.

At Nikko AM, managers argue that when

Japan’s markets do revive, however, a specialist firm able to provide private banks and other institutional clients with funds run by local, Japanese managers has a strong advantage over western-based companies that also operate Japan-themed funds.

Private banks and other institutions such as pension funds often outsource management of Japanese equity fund mandates to Nikko AM, an approach that makes plenty of sense given the local expertise that is required to do the investment job well, argues Lora-Ann Chiginsky, director, business development, at Nikko AM Europe, in a recent interview with WealthBriefing.

"We think we have an advantage of being in

Japan, being on the ground and in real time," she said.

The firm is certainly one of the big-hitters of investment management, overseeing more than $115 billion of assets. Last year, it took in more than $2.4 billion of new client money, which is no small achievement considering that Japanese equity markets proved a bitter disappointment for investors last year.

Among the portfolios that Nikko AM runs is its Japan Value strategy which recently won the 2008 Asian Investor Award for five-year risk adjusted performance, and has been been managed by Shigeru Aoyagi for over 10 years. Other strategies include Japan Core, Japan Growth and Japan Enhanced Index. As well as operating traditional long-only investment products,

NAM also offers equity long-short hedge funds for non-Japan clients. "This is a strong effort but it is as yet in its infancy," she said.

For all its in-depth local knowledge, however,

Nikko AM prides itself on its having adopted key western-style business practices in the Japanese marketplace, such as not rotating staff and of tying remuneration to client portfolio performance, not seniority, Ms Chiginsky said.

Nikko AM has a fair sprinkling of western senior managers at the firm. In 2004, for example, Tim McCarthy, who was formerly of
US stockbroking firm Charles Schwab, became Nikko AM's chief executive and later that year Bill Wilder, chief investment officer, joined the firm from Fidelity Investments,

Japan.  In late 2006, Charles Beazley, previously head of global institutional and alternatives at Gartmore, the UK investment firm, was recruited to head up Nikko Asset Management Europe in



Nikko is no stranger to European clients. It has been in

London as far back as 1984 and is continuing to push forward its brand in
Europe. A few days ago,
Nikko AM said it was close to finalising an exclusive distribution deal for the Iberian market place with Capital Strategies Partners in

Madrid, for example.

Part of the challenge for

Nikko AM, however, will be delivering strong investment performance. And for that reason,
Nikko AM must hope that after a relatively bright start for

Japan’s economy in the first quarter of this year, that the performance continues to improve rather than fizzle out in a false dawn, as has happened all too often in recent years.

Japan's economy recorded surprisingly strong growth in the first quarter of 2008, according to preliminary government data released in May. Real GDP growth sped up to 0.8 per cent versus the previous quarter, up from 0.6 per cent. This would equate to a punchy 3.3 per cent rise for a year.

The problem, however, is that a US-inspired global slowdown, even if it is cushioned somewhat by the continuing strength of Japan’s fast-growing neighbour China, could prevent the Land of the Rising Sun from seeing a sustained improvement in its economy and stock market, at least in the near term. But as Ms Chiginsky likes to point out, Japan is still the world's second-biggest economy and should not be written off. If the economy does enjoy better times again,

Nikko AM is determined that it will be in an ideal position to pass that performance on to its clients.

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