Aviva Investors is planning on opening an office in Tokyo next year as Japan has become the UK investment manager’s fastest-growing market in the region, its CEO and head of Asia Pacific, Richard Surrency, told FSA.
“As you tend to hit a certain size, what you do find is the more AUM you run on behalf of clients, the more demand there is for support in local language. It’s as simple as that,” he said.
Surrency noted that Japan was the fastest growing market in Asia Pacific for the investment manager in 2023 in terms of AUM, which he attributed in part to demand from Japanese investors to diversify their exposure.
“If you look at Japan, it runs the world’s largest pension fund. There is an inherent concentration risk and scale issue in these domestic markets, i.e. you can’t invest everything in your home market. You need to diversify from a risk perspective,” he said.
Earlier this month, Aviva Investors launched a convertible bond fixed maturity product in Japan.
The Tokio Marine Convertible Bond Fixed Maturity Product is a four-year fixed maturity product, which targets an 8% return in US dollar terms. The targeted AUM is $150m by the end of March next year as fundraising continues.
Asset allocators have previously noted that the convertible bond market is currently in dislocation, offering attractive yields, which Surrency notes is one of the reasons why launching this product makes sense.
“We just think it’s a really interesting time to get in. The yield is well above what we can provide with equity. If you look at the standard equity fund, you’re probably still in the 4-5% category for equity in terms of total distributions,” he said.
“So, it’s not even competitive with bonds and it’s underperforming cash now, whereas on the converts side, simply because of the structure of the market, we are looking at about 8.1%. And this is all investment grade. We don’t have to reach into the sub-investment grade.”
“What investors have seen, and this is certainly supported by the Bank of England and regulators, is a markdown of underlying assets very quickly. They didn’t want a post-GFC style markdown process, where it was death by a thousand cuts.”
richard surrency, aviva investors
Global markets opportunities
Aviva Investors’ headquarters is Asia in Singapore, and it also has offices in Sydney and Melbourne. The key markets the investment manager covers are Korea, Japan, Hong Kong, Taiwan, Singapore and Australia and to a lesser extent smaller markets such as Malaysia, Thailand and Brunei.
China is an obvious anomaly, especially at a time when a number of larger investment managers are setting up wholly owned mutual fund businesses from scratch or buying out their local partners. Surrency does not rule out expanding there one day but describes it as more of an “opportunistic” market currently.
“We do have institutions that wish to engage with us in the capacity of taking assets offshore, looking at the UK market and European markets. We’re happy to engage. But at this point, we don’t have any intention of putting individuals on the ground in China, having a business in China or operating the QFII/QDII platforms in China,” he said.
Regarding the UK, despite its various headwinds, Surrency noted that there was a lot of appetite among Asian investors for real assets because of the aggressive steps regulators have taken in forcing investors to mark down their investments.
“What investors have seen, and this is certainly supported by the Bank of England and regulators, is a markdown of underlying assets very quickly. They didn’t want a post-GFC style markdown process, where it was death by a thousand cuts,” he said.
“The valuations we believe are really bottoming out so this is an exceptionally good time to get into real assets in the UK.”
“For Asian investors in particular, whether it’s Korea or Japan or anywhere else, the currency hedging back to the USD is also a major issue for them simply because of the strength of the US dollar. That’s an impediment on any returns they get back from the US exposure, whereas in the UK, those hedging costs are minimal.”
