Unlocking Real Value Blog

AK In The News: Is Nomura’s US Exit The Start Of A Trend?

I was asked to write an opinion piece for Ignites Asia (A Financial Times Service) on whether Nomura’s exit from the open-ended mutual fund is the start of a trend in the Asian asset management business or an isolated incident. I believe that it’s an isolated incident and that growth opportunities still exist. To quote from the article:

“Nomura Asset Management (Nomura AM) had a number of things going against it when it entered the U.S. in 2008, as it:

  • Entered just before the fall of Lehman Brothers and the onset of the financial crisis
  • Overestimated the awareness and marketability of its name
  • Failed to make the necessary investment in distribution and
  • Chose to concentrate its offerings in the open-end mutual fund business rather than in alternatives such as exchange-traded funds. (It is continuing to operate two closed-end funds.)

I would find it hard to see any firm succeeding when faced with all those impediments. Some of the impediments were out of the firm’s control, such as the financial crisis, while others were certainly avoidable. And therein lies the lesson. I am not saying that it is easy to enter or succeed in the highly competitive U.S. mutual fund market or even Europe’s retail fund market. But there are still opportunities if firms enter the market with their eyes wide open, have a long-term time frame and have a sound distribution strategy.

Below are some of the key factors that will have the biggest influence on whether or not a firm succeeds outside the Asia-Pacific region.

Distribution – A key decision to be made upfront concerns whether asset managers are going to go it alone in distribution or partner with a more established firm in the given territory. There are, for example, opportunities to subadvise funds with proven distribution power as an alternative to putting the asset manager’s own network together in a foreign region.

Product choice – There will always be opportunities; managers just have to give the market what it wants. Nomura AM’s decision to primarily offer open-end mutual funds, particularly when any market observer could see the growth trend was in ETFs [exchange-traded funds], was in retrospect a mistake.

Patience – Especially if asset managers decide to go it alone on the distribution side, they must be patient in the best of times, let alone in the midst of a crisis and recovery.

Performance – I haven’t mentioned performance yet, but obviously you have to have good performance with a solid track record. I don’t believe performance is what caused Nomura AM to fail in this case. I hate to put it this way, but there are plenty of poor-performing funds out there that have amassed significant assets.

All in all, for all of the reasons cited above, I don’t see Nomura AM pulling out of the U.S. open-end mutual fund market as a signal of a change in the Asian asset management business. Instead, it should be looked at as a failed strategy on Nomura AM’s part coupled with bad timing and perhaps a tinge of impatience. Others should not take this move as an indication that the U.S. markets, or other foreign developed marketers, are over-saturated or too mature to explore. One can find promise in comments made by Nikko Asset Management’s CEO, Tokyo-based Charles Beazley, after news emerged about Nomura’s departure. Beazley told Ignites Asia that his firm is “extremely happy” today with its place in the North American market.

Nomura AM’s experience should be a wake-up call to other Asian firms wanting to enter the U.S. markets and should offer some guidance on what to do – and not to do – to be successful.”

Only time will tell.


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