Japan attracted significant international interest following the launch of Abenomics – how should global hedge fund managers assess Japan, and the rest of Asia, as a long-term source of capital?
The first two pillars of Abenomics, fiscal stimulus and monetary easing, gave a significant boost to the Japanese economy. The effect of the “third arrow” – structural reforms to stimulate growth – will be more gradual. However, since Abe’s re-election, there have been signs that Japan is embracing change and that it will impact all areas of the economy.
For example, the Government Pension Investment Fund of Japan (GPIF), the world’s biggest state investor, is shifting its asset allocation away from Japanese government bonds towards domestic stocks and international securities. As a result, GPIF’s investment in international assets will increase by around USD190bn. Where GPIF leads, other pension funds and investors follow. With that momentum, we should expect greater diversification in asset allocation by Japanese investors, including into the alternatives space. This presents a sizeable opportunity for hedge funds to raise capital.
HW: Are there any particular qualities Nomura can offer clients as an Asian dealer?
Ben Chalice (BC), Global Head of Prime Finance, Nomura: As Asia’s only full service prime broker, Nomura is well positioned to provide access to this region. However, with more than 65 per cent of our wholesale revenues generated outside Japan, Nomura has a comprehensive global offering. We bring meaningful geographical diversification for clients, away from traditional US and European providers.
Our capital introduction service provides clients with unparalleled access to Japanese institutional and retail investors via our dedicated local team. As well as extensive relationships with active asset allocators in Asia, the team runs highly regarded flagships events across the region and globally.
We can also leverage our strength in Japan and Asia by sourcing hard-to-access securities via our links with our Retail and Asset Management divisions. This provides market-leading stock lending availability, covering approximately 98 per cent of listed stocks in key Japanese markets, for example.
HW: Regulatory and market changes are causing many sell-side firms to re-evaluate their businesses. How has Nomura adapted to this evolving landscape?
BC: Regulation remains at the forefront of the agenda for sell side institutions, with EMIR, AIFMD, Dodd Frank and Basel III all in play. Banks are re-evaluating their business models in light of new capital and liquidity rules. These are causing most firms to recalibrate how they view clients and the profitability of their businesses. Nomura sees this as an area of opportunity as we have already embedded these metrics into our business model, and can therefore offer market-leading solutions to our clients.
HW: What do these changes mean in terms of relationships with hedge fund clients?
BC: Regulation has been a major driver of change for hedge funds as much as sell-side firms. In this increasingly challenged environment, Nomura has taken a consultative approach in helping clients navigate these changes; for example helping them implement the requirements of OTC and listed reporting under EMIR, or working with them to efficiently allocate balances across providers.
The client and prime broker relationship is becoming increasingly symbiotic, with a focus on transparency of pricing. There is an opportunity for clients and banks to work together as financing partners, as they both optimise their allocation of resources, particularly in high quality liquid assets. Nomura is well positioned given our clean and robust balance sheet, coupled with our unique cross-asset global markets structure. This allows us to be more efficient and holistic in our inventory management, which helps us to be competitive on pricing as well as quality of service.
