David Semaya, executive chairman of Sumitomo Mitsui Trust Asset Management, has outlined the forward agenda of the business, which was crafted over the past year to create a significant asset management player in the Asia Pacific region, but which is seeking to grow its client assets in other regions (https://www.investmenteurope.net/investmenteurope/news/3712078/bigger-blackrock-sumitomo-mitsui-trust-creates-asias-biggest-manager-apac-aum)
In an exclusive interview with InvestmentEurope, Semaya, who has had experience of living in Japan since the 1970s, has discussed his outlook for the new venture amid regulatory and market changes, as well as development of ESG and other commitments.
Q. What is the agenda going forward?
"It is about asking the questions how do we globalise the business and what does that really mean. What is best practice domestically and internationally."
"Governance is important. We have a culture of an open board and exchanging views. In particular I have been asked to help with the international business, where there is close to $20bn of international client assets.
"We are spending time on ESG and tapping into global best practice through links to organisations, associations and regulators.
"It is an interesting time to be in Japan. The asset management industry there is becoming more of an ‘industry'. While majority owned by banks, insurers, trust banks, there are also a few independent managers, and all are looking to best practice because they want a strong industry.
"The Japanese regulator was clearly focused on asset managers before, but with, for example, challenging demographics playing out, there is a bit more investment risk taking required long term. What we need to see in Japan is a focus on the end investors, the end customer."
Q. To what extent are international managers represented in Japan?
"International players are well represented. Looking at the last 3-4 years especially, and particularly fixed income managers, they are coming to Japan given low to negative interest rates, but other managers are also coming to the pension market which is large and deep."
"But there is still an element of focus on beta - it is only three years ago the GPIF (government pension fund) upped its allocation to equities.
"The challenge in Japan is very high client service expectations with a language barrier for international managers.
"Fees are going one way, down over time.
"In terms of global best practice the Japanese are huge consumers of global best practice. It's a G7 country with a high level of education and high knowledge of global topics - but some only know the rules, like people who know everything about tennis but who have never played it.
"So, for example, while domestic managers may have experience managing Japanese fixed income or Japanese equities, overseas asset classes may have not been core; so, when looking at overseas asset classes, investors will look for overseas managers.
"Japanese investors may have a large book of global equities, but it could be passive. So, there's an open mind, but it will take a Japanese form.
"This also impacts the uptake of ESG. The E and S will depend on the country and that is the same with Japan. Getting consensus takes time, but there is a focus on ESG; that's changed on 15 years ago."
Q What is your objective in terms of European presence?
"We have 13 people in London."
"In regards to ESG we have added headcount in London and will do the same in the US. We are present in Luxembourg.
"We offer a number of Ucits funds, such as the $500m Japanese small caps. We are looking to develop product around our small cap capability, for another $200-300m, and possibly other strategies beyond those related to small cap.
"We have had the same team in place on Japan small caps for 15 years.
"Global small caps are also an interesting area for us.
"It is very hard to outperform and generate alpha in large cap. Returns are better in small cap. In Japan there are 3,000 stocks below $3bn market cap and a great number of these don't report results in English.
"We are looking into other areas which could generate investment opportunities. Tourism is growing strongly in Japan, creating opportunity for disruptive technology start-ups.
"There are still plenty of industries where Japanese companies lead, where valuations are down; coupled with governance developments it means shareholders are now being rewarded.
"Also, companies are doing share buybacks, which is something that didn't happen a decade ago.
"Now that we have scale in the business, teams are looking at business development ideas. Our small cap product is distributed across many platforms.
"In the not so distant future, we would also like to test the market for our global index capabilities."
Q What type of ESG person is coming into the organisation?
"There are 13 people in our ESG team in Tokyo, all with hands on portfolio management skills, who have extensive knowledge about themes in the ESG space and can come up with views on where to be, for example, in respect of voting - proxy voting is no longer a box ticking exercise."
"The Japanese investment industry is looking outwards more. For example, on UN PRI, they actively participate, actively collect information, and are active in giving their point of view.
"We are thinking strategically on how to engage more in ESG. This may involve meeting regulators, exchanges and FTSE companies. We need to understand business leaders and their thoughts on ESG, and we need to understand how to implement more ESG through engagement."
Q What is the view of Japan in respect of China?
"Companies with exposure to both the US and China are being squeezed by the ongoing trade spat, but if there is a soft landing it will put them in good stead."
"Japan could be advantaged or disadvantaged depending on the outcome of the US and China trade war."
David Semaya first visited Japan in 1978 as a student. Currently he is executive chairman of Sumitomo Mitsui Trust Asset Management, a role he took up in May 2018. Previously, he was executive chairman of Nikko Asset Management, a role he took up in 2014. Earlier roles included head of Wealth Management UK & Ireland at Barlcays, CEO of Europe and Asia (Ex-Japan) at BGI (now BlackRock), president and CEO at BGI Japan, and president at Merrill Lynch Investment Managers in Japan.