Some of the world’s biggest institutional investors are looking to lessen their dependence on the US for returns, benefiting asset managers from other regions of the world, according to the chief executive of Japan’s Sumitomo Mitsui Trust Asset Management.
SuMi Trust has seen its assets under management from investors outside Japan triple over the past five years, largely driven by new passive mandates from sovereign wealth funds and central banks.
Over that period “many sovereign wealth funds and central banks have started to diversify their portfolio, both in terms of the markets in which they invest but also the investors they look to,” Yoshio Hishida told the Financial Times.
“In the past, if they had [mandates] with three passive managers, three out of three were US managers. Now some are starting to think: two out of three is fine, but one should be a non-US manager. That trend was very supportive for us.”
A string of geopolitical ruptures, including the economic disruption of the coronavirus pandemic and Russia’s invasion of Ukraine, has driven many institutions to look for different ways to diversify their risk — including geographically.
“The trigger was Covid-19 and the Russian invasion, which is obviously an extraordinary case, but people started thinking if something happens with China or the US . . . well maybe we should diversify the asset managers,” Hishida said.
Some investors have speculated that the war in Ukraine and the western sanctions it triggered on Russia’s companies and elites will amplify the desire in some quarters to reduce dependency on the US financial system — particularly for capital owners from outside the western sphere. Growing tension between China and the US has also exacerbated these concerns.
The use of renminbi for payments globally, often seen as a proxy for shifts away from US financial dominance, has risen steadily over the past decade while the dollar’s share has decreased — though it still remains on top, accounting for 42 per cent of global payments in September, according to Swift.
The fund manager, a sister company of Japan’s Sumitomo Mitsui Trust Bank, has $572bn under management making it one of the largest fund managers in Asia. Its core business remains investing on behalf of Japan’s large pension funds.
But with the world’s most rapidly ageing population and many of the country’s biggest defined benefit pensions coming to maturity, SuMi Trust is looking to expand internationally while also building its domestic retail business.
However, shifting Japanese households’ vast amount of savings into investment has proved slow. Only about 16 per cent of Japanese savings were held in stocks, bonds or mutual funds in the second quarter of 2022, according to the central bank, while a drop in the value of the yen against the dollar in the past two years has driven Japanese savers to tighten their belts further.
Reforms to the ceiling for taxing dividends and capital gains as part of prime minister Fumio Kishida’s “new capitalism” drive are expected to help, though progress on the agenda so far has been slow.