In August, Japan's Nikko Asset Management stated its desire to recreate the spirit of the former Jardine Fleming Asset Management. The following month AsianInvestor reported that the Tokyo-based firm was among those vying to acquire Singapore's DBS Asset Management.
And now Nikko AM has agreed to buy Sydney-based Tyndall Investments from Australian financial services group Suncorp for A$80 million ($80 million). Tyndall is the 15th largest fund manager in Australia and the fifth largest in New Zealand, with A$25 billion in assets under management.
The deal will push Nikko’s total AUM up to $145 billion, and the proportion of non-Japan assets from around 15% to 30% of total AUM. The transaction will also give the company offices in Sydney, Melbourne, Brisbane and Auckland, adding to those in Hong Kong, London, Singapore and Tokyo.
“This is an important step in our effort to grow Nikko AM into one of Asia's leading investment management firms,” says Blair Pickerell, Hong Kong-based head of Asia, who rejoined former colleague and Nikko AM chairman and chief executive Tim McCarthy in July.
“We’ve had our eye on the Australian market for some time, but it’s not easy to find good acquisition targets there,” he says, pointing out that there are 130-odd fund management companies in Australia, many of which are small and lack strong track records. “So when Suncorp wanted to divest Tyndall, we were all over that very quickly,” says Pickerell.
Tyndall is well known for its strong track record in Australian equities and Australian fixed income, says Nikko. Both teams were ranked this year by Ibbotson Australia (a Morningstar company) as the second best performing fund managers in their respective asset classes over the past 10 years.
Australia is the fourth biggest mutual funds market in the world, with A$1.25 trillion in AUM, and is expected to grow at a 13% CAGR between 2010 and 2020.
Nikko also has a long-standing investment management and trading team in Singapore, as well as a 40% stake in Shenzhen-based Rongtong Asset Management and a smaller deal in India.
Hence, says Pickerell, Nikko is now “firmly on the map” in all three of the largest domestic markets for Asia-Pacific asset management – Australia, China and Japan. He admits there is “some backfilling to do” in other markets, such as South Korea and Taiwan, but the firm now has a strong foothold in the “cornerstone” markets in the region.
Once the Tyndall deal is finalised, Nikko plans to continue its ‘highly decentralised’ and ‘multi-local’ approach with regard to the Australian firm, whereby it gives subsidiaries a high degree of autonomy.
“Asian countries are all very different, each market has its own characteristics, its own culture, own product demand and so on,” says Pickerell. “So in that sense we let each unit work relatively independently.
“Tyndall has a very good brand name, strong investment teams and strong management,” he adds. “So if it’s not broke, why try to fix it?”
Moreover, there were no Nikko AM staff in Australia or New Zealand prior to the deal, so there was no overlap between the businesses in that regard. And the Japanese firm has no plans to transfer any from other parts of the group, says Pickerell.
From Tyndall’s point of view, the deal provides useful investment management expertise and wider distribution capabilities. For example, it’s useful for the equity team to have Nikko’s on-the-ground insight, particularly in Japan, says Craig Hobart, managing director of Tyndall Investments.
“And it’s no secret that a lot of Australian dollar-dominated assets – predominantly fixed-interest assets – are raised in Japan,” he adds. “That’s the obvious asset class to sell [to foreign investors], but we have other products, such as a high-yield equity strategy, where we’ll explore opportunities.”
Becoming part of a pure investment-management firm is another plus, he adds. “We’ve been part of an insurance and banking group, so this is a particularly good outcome for our fixed-income team,” says Hobart. “They’re good at what they do and are keen to get out of the shadow of Suncorp and be more visible to the global market.”
Hobart is also happy with the outcome from an autonomy perspective. “The Nikko management team is very mature and have all worked for global franchises in their careers – they recognise the level of bureaucracy of global firms and the nuances of Asian markets,” he says. “So the most effective model is a local-to-local, relatively light-touch model – local manufacturing, local brand relevance etc.
“It’s a great outcome that will be very non-disruptive for our clients,” adds Hobart.
Nikko AM now has 530 employees worldwide, nearly 30% of whom will be located outside Japan following the Tyndall deal, on which the firm was advised by Keefe, Bruyette & Woods.
The asset manager plans to make further acquisitions following its ‘multi-local’ strategy, says Pickerell, but “whether that’s done through acquisition or organic growth depends on country-by-county opportunities”.
The same goes for how any other acquisitions proceed in terms of ownership. “Of course, generally speaking, any company would prefer to own more rather than less of a firm,” says Pickerell. “But in some places you have no choice – for example, in China, you must be part of a domestic JV, and in Malaysia, you often have to have bumiputra [native Malay] partners,” he adds. “So there are no hard and fast rules, and we’ll do what it takes to build a strong regional business.”
Pickerell declines to comment on the reports of a potential deal between Nikko and DBS Group for the latter's $20 billion asset-management arm.
Asked whether Nikko AM has a target size in mind, Pickerell would only say that, at $145 billion in AUM, the firm is already one of the biggest managers by assets sourced from Asia. Indeed, Nikko was eighth on AsianInvestor magazine’s list of such firms in December last year – ahead of such household names in the region as Franklin Templeton, HSBC Global Asset Management and Pimco.
If the Japanese firm continues to build its AUM at a rapid pace, it may not be long before it's challenging for a top-five position in that line-up.