Singapore: Nikko Asset Management, a unit of Japan’s Sumitomo Trust and Banking, will buy Singapore’s DBS Asset Management in a deal valued at $105 million to expand its reach in South-East Asia.
The deal reflects consolidation in the fund industry, where size has become increasingly important amid rising costs and falling fees for mutual funds.
“Scalability can be very important for medium to large-size asset management companies because you’ve got to a point when you don’t really need more people to manage more assets,” said Peter Elston, a strategist at Aberdeen Asset Management Asia. “There is continual pressure on fund managers to improve scale.” Nikko Asset’s assets under management will grow to $150 billion from $120 billion once the acquisitions of the DBS unit and Tyndall are completed, chairman and CEO Tim McCarthy said at a news conference in Singapore on Monday.
Nikko Asset, which gets more than half its funds from Japanese investors, is keen to transform itself into a pan-Asian asset manager.
Last month, the firm announced the purchase of Australia’s Tyndall Investments for A$80 million.
Under the terms of an agreement Nikko Asset will acquire DBS’ unit for S$137 million ($105 million). DBS will in turn use the money to buy a 7.25 % stake in the enlarged asset manager. DBS will not inject the unit’s 33% stake in Changsheng Fund Management into Nikko Asset, the two firms said, confirming a Reuters report last week.
Asia, where many domestic banks own asset management arms, has lagged the West in deal-making in the asset management sector. DBS said its asset management unit and its Malaysian affiliate together managed $7 billion in assets as of September 2010, meaning Changsheng had around $13 billion as the bank had previously said the unit and its affiliates managed about $20 billion in total.
DBS CEO Piyush Gupta has targeted wealth management as a key plank of his growth strategy and partnering Nikko could make its asset management arm a bigger proposition for wealthy clients.
“The tie-up with a partner like Nikko Asset, that shares DBS’ deep commitment to Asia, will enable us to build scale, while leveraging DBS Asset Management’s investment and structuring capabilities,” Gupta said in a statement. Gupta said DBS will continue using what will soon become Nikko Asset’s Singapore arm to “manufacture” investment products for its private banking and priority banking customers. The Singapore bank will also distribute Nikko Asset’s products through its branches in Singapore, Hong Kong and elsewhere in Asia as part of the deal with the Japanese firm.
Changsheng was excluded from the deal as DBS needs the Chinese asset manager to help it capture more yuan-related businesses, the Singapore lender added.
The purchase of the DBS unit will give Nikko Asset a strong presence in Singapore as well as a foothold in Malaysia, where the unit has a 30 % stake in HwangDBS Investment Management and a 51 % stake in an Islamic manager.
The purchase of DBS Asset Management comes less than a month after Nikko Asset announced the purchase of Tyndall from Australia’s Suncorp Metway in a deal that could be worth as much as A$128.5 million ($127 million).
Tyndall manages about A$25 billion, most of it in fixed income, while Nikko Asset had about $120 billion as at end September. The Tyndall purchase will provide the Japanese firm with offices in Australia and New Zealand.
McCarthy said there would be no layoffs resulting from the acquisition of the DBS unit and said Nikko Asset was looking to hire more analysts, particularly for fixed income, as well as product experts who could train the banks that distributed its funds.
Besides the DBS unit and Tyndall, Nikko Asset also holds a 40% stake in China’s Rongtong Fund Management.
Citigroup advised DBS in the deal while Goldman Sachs worked for Nikko Asset.