Nikko AM Aims to Boost Assets by a Third in Five Years, CIO Says

Nikko Asset Management Co. is aiming to bolster assets it oversees by about a third to $272 billion in five years, counting on Japanese investors to scoop up riskier securities as inflation accelerates.

(Bloomberg) — Nikko Asset Management Co. is aiming to bolster assets it oversees by about a third to $272 billion in five years, counting on Japanese investors to scoop up riskier securities as inflation accelerates.

Renewed demand for stocks will boost the Nikkei 225 Stock Average to 40,000 by 2026, Chief Investment Officer Hiroshi Yoh said in an interview. Japan’s core inflation will likely stay above 2%, while the 10-year government bond yield will hit 2% versus 0.7% now, he said. Tokyo-based Nikko Asset currently manages around 30 trillion yen ($204 billion).

“Most Japanese investors are still warming up” to the idea of buying and selling assets when there’s inflation, Yoh said. “Japan has stayed in a deflationary environment for 30 years and most investors never experienced inflation, so they don’t know how to react.”

Nikko is hoping to guide more of those investors in their trading decisions. To achieve its goal of a 10 trillion yen increase in assets under management, Nikko needs inflows of 800 billion yen per year if the stock market gains on average about 5% annually, Yoh said.

Only fund mangers that are in the top quartile in terms of returns generally get more mandate from investors, Yoh said. Those in the second quartile typically see their asset size stay steady while funds that are in the two lower levels tend to see fund outflows, he said.

Yoh said he aims to increase the portion of the firm’s funds in the first and second quartiles to 60% from around 55%.

The key to investment success lies in identifying secular trends, and inflation, artificial intelligence and dealing with an aging society are among the long-term developments that investors need to focus on.

“We clearly see the AI revolution taking place,” Yoh said. “Companies that can make their business efficient, cut costs, provide new products and services, and enjoy benefits from AI are seeing their share prices rally.”

Nikko Asset is also looking to boost its line-up of investment products in illiquid assets such as private debt and alternative investments, and expand other businesses such as cash management services, given increased demand from investors, he said.

Yoh started working in Tokyo’s financial industry in 1989. That was the year that Japanese share prices hit a peak, before the asset-market bubble collapsed and led to three decades of economic stagnation. The sluggish market in those years forced fund managers to look hard for companies with a bright outlook.

 “It’s important not to get that big picture wrong,” he said.

–With assistance from Winnie Hsu.

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