There is definite proof that sustainability-focused funds are outperforming their conventional counterparts. But some experts believe the traditional explanations for this are wrong.
McCarthy, who has worldwide experience at a number of top brokerages and asset managers, was brought on board in early 2004 following a massive restructuring at Nikko Asset Management, one of JapanÆs biggest investment advisors. The firm was made independent of Nikko Cordial, which is one of the top-three brokerages in Japan. McCarthy was given a mandate to introduce global standards across the board, from investments to corporate governance, with a view to an initial public offering.
The firm is widely perceived as having made a dramatic turnaround under the new leadership and merger of American style with a strong Japanese franchise, and rivals now rank Nikko as a fierce competitor.
Last year, however, it faced a potentially crippling crisis, when senior executives at the parent were caught committing fraudulent accounting that dated to 2005 when they claimed a lower pre-tax profit than was the case. Not only did this lead to a Ñ500 million fine by the Financial Services Agency, but almost led to its being delisted from the Tokyo Stock Exchange. Its brokerage business was frozen for five months, and in March the company was forced to sell a controlling stake to Citigroup, which had already possessed minority ownership.
Such a blow to reputation could have sunk Nikko Asset Management, but McCarthy says the fund house has not suffered overly much and its IPO plans remain on track, and carries CitiÆs blessing.
ôThree years ago, we said we would do the IPO in four or five yearsÆ time, and weÆre sticking to that target,ö McCarthy says. ôWeÆre not doing it for the money. We donÆt need the money. We just returned a big dividend to our shareholders. So that takes a lot of the pressure off.ö
He had expected the crisis with Nikko Cordial to impact sales, both institutional and retail. He says it did impact the firmÆs growth rate û which flattened û but it didnÆt suffer net redemptions. In fact he says in the fourth quarter of 2006 and the first quarter of 2007, as the crisis played out, Nikko AMÆs total assets ended on a net positive.
ôDistributors accepted the argument that we had been making for the past three years, that we are an independent company,ö McCarthy says. He adds that Nikko AM didnÆt face a major image problem with the general public, in part because the scandal was complicated and didnÆt result in jail terms, and also because so many Japanese brands have been tainted in recent years, the Nikko Cordial fraud wasnÆt a shock.
ôFor three months we didnÆt get any new institutional mandates, but we didnÆt lose any, either,ö he says, adding the firm has recently returned to pre-December assets under management.
The crisis has catalysed a change in the firmÆs distribution pattern, however. Three years ago, Nikko Cordial accounted for 93% of Nikko AMÆs sales, while Nikko AM made up 19% of the parentÆs fund sales. Since then the parent has gradually sold down its holdings in the asset manager and reduced its presence on its board of directors. Warburg Pincus and SingaporeÆs Government Investment Corporation are strategic shareholders in Nikko AM, and McCarthy also promoted more independent board executives.
Despite the loosening of ties, Nikko AM products now comprise 60% of funds sold through Nikko Cordial. ôBrokers awarded our independence,ö McCarthy says. ôI had to earn their business.ö Nikko Cordial is now the firmÆs biggest single channel, responsible for 25% of sales.
The Post Office has become another important channel, accounting for around 10-15% of Nikko AMÆs sales. And NikkoÆs products make up roughly a third of post office fund sales.
ôThe post office channel brings Nikko $10 million each day,ö McCarthy says. He professes amazement at the quality of people at the post office. ôIn America, you know what it means to ægo postalÆ. But in Japan, they have some very good reps, some very enthusiastic people. In many communities, the post office is a good job with decent pay, and post office areas compete with each other a lot.ö
The other roughly 65% of Nikko AMÆs distribution is via banks, with the biggest Mitsubishi, Resona and Citibank. CitiÆs acquisition of Nikko Cordial has no formal impact on distribution, because it uses open architecture, McCarthy says. (Although a press release at the time of the deal says Citi will look to deepen the distribution relationship with Nikko AM.)
But the two already have a relationship that dates back two years when Citibank distributed Nikko AMÆs China A-share fund. That was a hit, which gave Nikko AM a good name with CitibankÆs customers. ôWe donÆt need a plug with Citibank,ö McCarthy says. ôOpen architecture suits us just fine.ö
Going forward, Nikko Asset Management sees its growth based on the ongoing success of China and India. It has formed a JV in India with Ambit and has recently taken a 40% stake in Shenzhen-based Rongtong Fund Management, with which it has had a more informal partnership for two years.
Investors can still find spread premiums in niche private debt, with the asset class's prognosis looking strong, said a keynote speaker at AsianInvestor’s latest summit on Wednesday.
AsianInvestor details the second part of our marquee award winners for 2021, which includes the standout ESG adviser and also the asset manager of the year.
AsianInvestor reveals the first half of our marquee winners for this year's Asset Management awards, including best asset service provider and top alternative fund houses.
The number of millionaires in mainland China grew by 35% in 2020, while the number of millionaires in Hong Kong fell by 7%, according to a new report from the private bank.