AI100: Weak yen hits AUM growth of Japan fund firms

Japanese fund managers saw their Asia-Pacific assets under management (AUM) fall in 2017 after growing by nearly 30% in 2016, according to AsianInvestor’s latest survey of the region's biggest asset managers.

Our annual AI100 list, which tracks Asia-sourced AUM at leading global, Japanese, and other Asian fund houses, showed Japanese asset managers accounted for 23% of total Asia-Pacific AUM last year, with Asset Management One, Sumitomo Mitsui Trust Bank, Nomura Asset Management, and Mitsubishi UFJ Trust & Banking taking up four of the five top individual spots.

However, total regional assets managed by top Japanese asset managers declined by 4.3% to $2.3 trillion in the 12 months to September-end 2017 from $2.4 trillion a year earlier. The share of Asia-Pacific AUM held by Japanese fund houses was also down from the 26.7% recorded in 2016.

Of the 10 Japanese fund houses on this year’s AI100, half showed a decline in AUM.

Part of that decline was due to a weakening yen, Yutaka Komiyama, head of the international business department at Sumitomo Mitsui Asset Management, told AsianInvestor.

“The AUM decreased mainly due to a depreciation in the Japanese yen in converting the AUM, as the yen ... fell from ¥101.265 per US dollar as of September-end 2016 to ¥112.565 per US dollar as of September-end 2017,” Komiyama said.

The 10% drop in the yen’s value had a particular impact on the AUM of Sumitomo Mitsui Asset Management, which dropped 25 places to 39th in the AI100 rankings. It saw the steepest decline in Asia-Pacific AUM among Japanese fund houses, falling by 13.6% in 2017.

INSTITUTIONAL INVESTOR GROWTH

Of the five Japanese fund houses that had positive AUM growth, only Mitsubishi UFJ Trust & Banking posted a double-digit percentage increase. This was mainly due to increased flows from institutional investor clients, Norikazu Yuba, chief manager of the global client relations group at Mitsubishi UFJ Trust & Banking, said. 

“Japanese public pension funds were the driver of the new flow,” Yuba told AsianInvestor.

The Tokyo-based asset manager saw its Asia-Pacific AUM grow by 13.5%, from $349 billion in 2016 to $396 billion in 2017, though it remained at five on the AI100.

Nikko Asset Management also attributed part of its growth to institutional investors, especially around overseas investment opportunities.

“On the institutional side, we have seen particular interest among Japanese investors in the opportunities outside of Japan that our global network offers, including areas of European debt,” Stefanie Drews, the fim's global head of product and marketing, told AsianInvestor. 

Nikko was one of only five Japanese fund houses to grow their Asia-Pacific AUM in 2017, though their 2.2% growth in 2017 was a major slowdown from the 23.2% growth it achieved in 2016. As a result, they fell two places to 12th in this year’s AI100.

Nikko declined to comment on the reasons behind the slowdown in its AUM growth.

EQUITY MARKET BOOST

In addition to institutional investor flows, soaring markets also contributed to Mitsubishi UFJ Trust & Banking’s AUM growth.

“The increase was driven by both net inflow in equity products and equity market appreciation,” Mitsubishi’s Yuba said.

The Nikkei 225 Index, for example, grew by 23.7% from September 2016 to September 2017.

Japanese equity products proved attractive to investors, Nikko’s Drews agreed, as well as certain overseas equity opportunities, including environmental, social and governance initiatives.

“We have had substantial wins in the ESG global equity space in particular, as well as more local equity variations such as Australian equity,” Drews said.

The ASX 200, the stock market index for the Australian Securities Exchange, grew by 4.5% in the review period.

2018 OUTLOOK

Index tracking-type products and real asset type products have continued to be popular this year among investor clients, Yuba said, but traditional active-type products might see increasing demand in a rising interest rate environment.

The Federal Open Market Committee has already raised US interest rates six times since December 2015, with the latest hike in March 2018 bringing the federal funds rate to a range of 1.50% to 1.75%. And more rate rises are anticipated as monetary policy is slowly "normalised" after being loosened to an unprecedented degree in the wake of the global financial crisis a decade ago.

Global equities, Japanese equities, and China A-shares are a key focus for Nikko Asset Management this year, Drews said.

Innovation investment themes are another priority for Nikko, in conjunction with joint venture partner Ark Investment Management, she added. This includes opportunities in automation, energy storage, and blockchain technology.

The Japanese fund house acquired a minority stake in Ark in August 2017.