FINANCIAL TIMES MONDAY NOVEMBER 14 2011 – Face to face
Tim McCarthy tells Lindsay Whipp about recent acquisitions and local expertise
Tim McCarthy, Nikko Asset Management’s burly American chief executive, is a far cry from the more conservative Japanese heads of domestic fund management companies.
But the philosophy that underpins his core management strategy is rooted in the very Japanese martial art of karate. While running a training place, or dojo. in San Francisco two decades ago he discovered the importance of the Japanese concept of sunao, which he interprets as meaning pure, or fully grasping a discipline, before jumping to conclusions or making changes.
“You can be a black belt in one style of karate, but when you go over to another man’s dojo which is a different style, you don’t comment, you first become a black belt in his system, and only then do you have the right and ability to compare,” Mr McCarthy explains.
This is clear in the strategy he and his management team have introduced through Nikko Asset Management’s Asia-Pacific acquisitions. Last year Nikko AM bought Tyndall of Australia for $80m and acquired 7.25 per cent of Singapore’s DBS Asset Management in a share swap with DBS. These were additional to the group’s existing portfolio of non-Japanese businesses, consisting of a 40 per cent stake in China’s Rongtong Fund Management and a 30 per cent holding in HwangDBS Investment Management.
In line with the sunao he learn through karate, after the acquisitions Mr McCarthy has relied on the expertise of his local managers to make big decisions, such as the products that should he introduced to the market and which ones need adapting to better suit the market. He says that in the past he has worked at companies where attempts to make synergies ended up forcing too much compromise and increasing costs instead.
Nikko AM generally keeps the brand names of the asset managers it has partially or fully acquired, and the staff and management local. Staff are not required to speak a language outside their native tongue and are also not expected to take part in international conference calls requiring late-nights on the telephone in pyjamas.
Mr McCarthy says his approach is different from the more usual “Anglo-American centric ego that says we know the best for you, rather than, the countries know best for themselves”, and focuses on •what can remain intact.
‘When you go over to another man’s dojo … you first become a black belt in his system’
“We localise for distributors and indeed what the local management team wants,” he says.
Back in Japan, Nikko AM is quite a different animal from its competitors, many of which are subsidiaries of mega-banks such as Mitsubishi UFJ Financial Group, or brokerages, such as Nomura. Nikko AM is 78.25 per cent owned by Sumitomo Trust Bank, 7.25 per cent by DBS, and 14.5 per cent by employees. The asset manager is believed to be planning an IPO in the near future, though Mr McCarthy will not comment on the subject.
Two of its seven-member management team are Japanese with the remaining five from Europe and the US.
Also a rarity in Japan, Nikko AM’s nine-strong board has only three members from within the company, three from Sumitomo Trust Bank, one from DBS and two independent directors.
It is interesting to note this structure at a time when boards at Japanese companies are coming under scrutiny in the wake of the scandal at Olympus, where three board members were involved in hiding losses from previous speculative investments.
Analysts say the scandal highlights problems in board composition where often the president shifts to chairman and then adviser, retaining too much control over decisions and leaving in question the true independence of the board. Outside directors are also often members of subsidiaries or main banks.
In this context, Mr McCarthy has distanced himself from the more traditional way of running a company in Japan.
He says when he took over as chief executive in 2004, all decisions were made by the person in that role. He argues that it not only involves a lot of work and lack of space to step back and catch potential problems, but that the mindset of other members of the management team becomes “passive”.
He instead put an executive committee in place to approve management decisions to recommend to the board.
As an asset manager demanding good corporate governance from companies it invests in, Nikko AM has to be able to set an example, says Mr McCarthy.
“Japan has improved, with more recognition of return on equity, but the biggest change has been the [improvement] in the dividend policy,” he says. “It takes a lot of sophistication … before people start to get that it’s easier overall and you can make more money if you follow those [governance] rules.”
Top management at many Japanese companies have worked at the same organisation since university and are often of similar age. Mr McCarthy says there are advantages to having such close relationships, but that in the network age of rapid change, this style lacks impact and breadth of disagreement.
“For the industrial age, the Japanese system worked quite well. For the technology age, parts of it worked. But in the network age, it’s all over,” he says. “That gives you a feeling for how much we need to see change here to keep up with the Chinese.”
Name: Timothy McCarthy
Education: 1973: BA Econ and Inti Relations, University of California, Davis 1978: MBA from Harvard Business School
Career: 1983 Merrill Lynch Capital Market and Business Financial Service, New York 1987 Fidelity Investments, Boston; president, Fidelity Investment Advisor Group; president, National Financial Institutional Services;
Nikko Asset Management
Established: 1959. The group, which manages a wide range of Asian equities and fixed income strategies for retail and institutional investors worldwide, has grown into the largest regional asset management company headquartered in Asia
Assets under management: $165bn. Nikko AM has more than 400 funds and one of the largest distribution capabilities in Japan
Employees: Approximately 1,000 employees and 250 investment professionals
Offices: Operates in nine territories. Head office in Tokyo and offices in Hong Kong, Singapore, Sydney, Melbourne, Brisbane and Auckland. Global offices in New York and London provide support to investors in Europe, the US and the Middle East
Ownership: 78.25% owned by Sumitomo Trust and Banking. 14.5% by employees and 7.25%