Return to search

Nomura retaliates on PE funds failure in Japan with more infrastructure

Normura Trust Bank says it like it is on its’ disappointing experience with alternatives appetite from institutional investors but stands ready to rise with infrastructure and a little help.

On learning from experience, executive manager at Nomura Trust and Banking Co. (Nomura Trust Bank) Takashi Futatsugi’s perspective is one that leaves both perplex and upbeat. Both candidly open and mysterious in his tone, he manages to surprise you with choices for the future which may not present themselves as obvious developments to the past challenges he’s met.

With the premature end of two of his previous attempts at bringing interest from the market to PE funds and hedge funds which he took on to institutional and retail investors for high net worth clients from 2002 to 2008, then later to PE capital through fund of funds, from 2009 to 2013, one would expect a complete change of direction, but instead, and perhaps thanks to good timing with the privatisations promised by Abe’s government, his enthusiasm for alternative investments persists, with clear tailwind for the infrastructure asset class.

When asked why the Nomura PE Capital, a management team which launched two Asian fund of funds between 2009 and 2013, was to be acquired in the very near future by Nomura Asset Management, an euphemism for a discrete exit to the entity after its second fund closed at $50 billion in 2012, short of $150billion of the original target size, Futatsugi gave three potential reasons, with an open lack of conviction on what the real factor may have been: “PE is still a new asset class in Japan, it is an illiquid asset class as it relies on close-ended funds, but most of our investors needed high liquidity levels which the product we were selling them was unable to provide” he said in an interview with Infrastructure Investor.

The lack of sophistication in Japanese retail and institutional investors, was then mentioned when questioned a second time on the reasons behind the lack of appeal for the second enterprise which he took on, deciding to opt for a less pronounced direction and choosing the fund of funds structure which included hedge funds, PE funds and infrastructure funds among others: “Our clients didn’t really understand the merits of funds of funds, which among others included for a majority of them the fact they didn’t need to manage those thousands of investments themselves, given the lack of internal capacity to do so,” he continued.

The last argument which has the merit of honesty was conceded with a redeeming damper: “Perhaps, we didn’t try hard enough to market those products, but also, with the second Asian fund of funds, we didn’t get the seed investment from our parent company which we had received in the first fund, closed in 2009 (a seed investment of $50 billion which rose to $120).

In a country where most pension funds are obliged by regulation to operate via trustees, unlike other institutional investors, to choose their managers, the need to build on those experiences and draw a line on products not as appealing may seem menial. However, a new set of rules, wiping out the majority of pension funds with assets under management of only a few millions from the institutional investor scene in Japan will surely pressurize the likes of Nomura to choose more wisely in the future, given the subsequent market compression.

In its quest to partner with the right set of skills and the right products, this time around Nomura is taking its time.  Futatsugi says he has been interviewing numerous asset managers and says the biggest hurdle in offering the right products for his clients is choosing from the vast majority of managers and products themselves.

Although interests differ from one client to the other, there is clear interest for steady income producing investments, which can only come from open-ended structures in order to reflect the need for liquidity. However, it is determining how open-ended the funds on the market are which is tricky in his eyes. “Our clients will want to know when they will be able to cash in the entirety of their interests, and that is the part which we are not always sure about,” he said.

For the moment Futatsugi and his team are strongly drawn towards core strategies in developed economies, Core plus strategies getting the second preference. There is also strong appeal for infrastructure debt products from companies with long track records.

“Hastings Funds Management’s flagship open-ended fund in that respect is a strong candidate. It was created in 1994, over 20 years ago, which we find astonishing,”Futatsugi revealed.

 

Last one on the list, infrastructure fund of funds which would englobe all three strategies is yet another option Nomura is looking at.