Kimura believes that the mutual fund industry can avoid debt crisis through robust credit analysis and risk management systems.
After becoming a sole promoter of Reliance Nippon Life Asset Management, Nippon Life Insurance of Japan is open to more acquisitions in the domestic mutual fund industry.
In a candid chat with Moneycontrol, Minoru Kimura, Executive Officer, head of Asia Pacific, Nippon Life Insurance, said: "If there is a good opportunity to extend our capacity into new areas, or new asset class we are very much open to inorganic growth."
He was quick to add that Nippon Life will not make the acquisition for the sake of buying but the company should add significant value to their existing business.
India's fifth-largest asset management company, Reliance Nippon Asset Management (RNAM) – which manages assets worth Rs 2.02 lakh crore as of September 2019 – has been fully taken over by partner Nippon Life Insurance. The fund house is now called Nippon India Mutual Fund (NIMF).
In 2012, Nippon Life Insurance bought a stake in Reliance Mutual. The company was subsequently renamed as Reliance Nippon Life Asset Management (RNLAM). The new entity went public in October 2017. In September 2019, Nippon Life purchased a 75 per cent stake.
The 130-year-old Nippon Life is the largest private life insurer in Japan and has assets under management worth $700 billion worldwide. The company has international operations in the US, Europe, Asia and Australia. It holds stake in TCW – a US-based asset manager – and DWS – a Germany-based asset management group. It is interesting to know that DWS had an asset management company in India, which was sold to Pramerica AMC (now PGIM) in August 2015.
The Japanese partner Nippon acquired a 75 percent stake in RNAM for Rs 6,000 crore.
When asked whether Nippon Life Insurance is planning to infuse more capital into Indian Mutual Fund, Kimura said: "We already have enough capital for the business going forward. So, at this moment of time, we don’t need additional capital."
Currently, the company has a net worth in excess of Rs 2,400 crore.
"We don't see any requirement of cash. The board of directors has a policy that the company’s 60-90 percent of the profits are given back as dividends because the company does not need any further capital, unless and until there is an acquisition or any such opportunity," Kimura added.
On the credit event that shook the domestic mutual fund industry, Kimura said: "It was more of a structural issue and more to do with NBFCs and most countries and all economies have faced such kind of issues in the past."
Kimura believes that the mutual fund industry can avoid such crisis through robust credit analysis and risk management systems as Japan too had faced a crisis in 1990 and has come out of it.
He feels, too much exposure in one segment, one group, or one company can make a very big impact on the overall portfolio if a company goes bust.
"Japan faced a very difficult time in the early 90s. Japan had also faced same NBFC crisis. During that time we increased our risk profile and made our portfolio more diversified portfolio. So we may share our experience with the teams in India, and then they can work on it and follow it here," said Kimura.
Japan's "Great Recession" that began in 1990 was a "balance sheet recession". It was triggered by a collapse in land and stock prices, which caused Japanese firms to become insolvent, which means their assets were worth less than their liabilities.
JAPANESE FUNDS IN INDIA
The fund is gearing up to launch various Japanese schemes for Indian investors.
"There are two parts of the international strategy, one is definitely launching Japan-focused products in India, which at some point of time Indian investors will get ready for it," said Kimura.Also apart from Japan, Nippon Life has global affiliates across the world. So Indian investors will get an opportunity to diversify, he said.Get access to India's fastest growing financial subscriptions service Moneycontrol Pro for as little as Rs 599 for first year. Use the code "GETPRO". Moneycontrol Pro offers you all the information you need for wealth creation including actionable investment ideas, independent research and insights & analysis For more information, check out the Moneycontrol website or mobile app.