Nomura Asset Management U.K. Ltd Global Emerging Markets Strategy INDEX OF PUBLICATIONS • The case for emerging markets and regional versus global management considerations Palgrave Macmillan, 2009, Pensions Vol. 14, 1, 36–46 • Q&A: how to get the best from Emerging Markets Engaged Investor, Nov-Dec 2008 • Emerging markets still in favour Financial Times, 20th Oct 2008 • Expert View: Emerging Markets Engaged Investor, Trustee Handbook 2009 • Emerging markets: divide and conquer European Pensions, Sep 2008 • China and India – Is it time to invest now? Engaged Investors, Sep-Oct 2008 • Emerging Markets in the grip of inflation: winners and losers Global Pensions, Sep 2008 • The poacher’s guide to game-keeping in Emerging Markets Global Pensions, Sep 2008 • Who’s got the Alpha in Emerging Markets? Global Pensions, Jun 2008 • Investing in “Emerging” Europe Engaged Investors, May-June 2008 • No quick fixes Professional Pensions, 15th May 2008 • Emerging Markets provide the opportunity to add value Engaged Investors, Trustee Survival Guide, May 2008 • Investors debate decoupling theory Global Investor Magazine, Apr 2008 • Taking a regional approach to Emerging Markets Global Pensions, Apr 2008 • Global Emerging Markets Engaged Investors, Mar-Apr 2008 • Where is the Alpha? Investment World, Feb 2008 • Safety in Numbers Investment World, Feb 2008 • All about Emerging Markets Investing Engaged Investors, Nov 2007 • How best to access Emerging Markets Alpha Global Pensions, Nov 2007 • Alpha spurs on Emerging Markets Global Pensions, Oct 2006 EUROPEAN PENSIONS AWARDS 2009 - Winners supplement Highlighted winner: Emerging Markets Investment Manager of the Year Nomura eeking out potential in the less developed markets is a challenging role at which only the best can succeed; yet for those that do, the rewards Sfor European pension funds investing in this area can be great. This award recognises those managers that have shown a dedication to the emerging markets space with a view to achieving performance, whatever the market conditions and often in areas where information flow is in short supply. Nomura Asset Management was presented with the coveted prize of Emerging Markets Manager of the Year award for its unique and innovative approach to the emerging market space; its presence in the market; its expertise; and for creating a regionally focused emerging strategy accessible even to smaller funds. Nomura is focussed on responding to the needs of European pension funds and uses its specialist asset management capabilities to meet those needs. The firm has provided asset management services to European pension funds since 1984 and through continued success in most market conditions has grown its assets in emerging market equities significantly. Nomura aims to deliver alpha to the European market through innovative strategies including core, absolute return and high alpha structures coupled with excellent client service. A core objective is to provide European clients with the alpha they are seeking within a risk controlled framework. Nomura’s emerging strategy, now three years old, has delivered outperformance in both rising and falling markets by combining three specialist emerging market managers from each of the three main regions (Asia, Latin America and EMEA) into a single global emerging market product. Clients are able to get the benefit of the three managers, but only have to deal with one. They also get the benefit of manager diversification and uncorrelated alpha. Nomura has clearly responded to the needs of pension funds by creating this regionally focused emerging strategy. Given governance and budget The European Pensions Emerging Markets Manager constraints faced by most pension funds, accessing regional expertise was of the Year award was presented to Nomura Asset once something only the largest could enjoy. Nomura's product opens this Management. Receiving the award is David da Silva. market up to all funds. Head of GEM Strategy (centre) at the firm. The award Its unique & innovative offering, coupled with independent third party research was presented by Comedian Chris Barrie (left) along puts it ahead of the game in the emerging market space. Congratulations to a with one of the judges, Matt Wilmington, International deserving winner. Benefits Actuary, Hewitt (right). www.europeanpensions.net/awards 31 Original Article The case for emerging markets and regional versus global management considerations Received (in revised form): 20th October 2008 David da Silva is the Head of GEM Strategy at Nomura Asset Management UK Limited. He has been with the fi rm since 2004. Before this, he held product development roles in Morley Fund Management in London, with specifi c focus on Japan, Singapore and the United States. He commenced his investment career at Commercial Union Investment Management in South Africa as an analyst and fund manager in 1996. In 1999, following Commercial Union’ s disinvestment from South Africa, he moved to London to work at Commercial Union ’ s investment management business, Morley Fund Management. He has a B.Com. (Hons) degree from the University of Cape Town, South Africa. In 1999, he attained the Chartered Financial Analyst designation. ABSTRACT This paper considers whether there is a strategic case to be made for investing in emerging markets and, if so, whether the timing is still right to invest. The question of how best to achieve emerging market exposure is then addressed, in particular whether using a collection of regional specialists is superior to using a single global emerging market manager. Independent research from Oliver Wyman supporting the case for regional specialists is then reviewed. Pensions (2009) 14, 36 – 46. doi: 10.1057/pm.2008.36 Keywords: emerging market equities ; case for regional specialists EMERGING MARKET seriously undermined, with emerging markets PERFORMANCE declining more rapidly than their developed Emerging market equities have performed counterparts; the MSCI EM index declined by 33 relatively well over the 3 years leading up to per cent versus the 26 per cent fall in the MSCI September 2008, comfortably outperforming World index (performance up to the end of developed markets, with a return of 28.4 per cent September 2008 in US dollar terms). In an versus, for example, the 0.6 per cent decline in increasingly globalised and interconnected world, the S & P 500 in US dollar terms (Figure 1 ) . This total decoupling always seemed unlikely, but what relative strength had encouraged many to is true is that emerging countries are less subscribe to the ‘ decoupling ’ argument, which vulnerable to a developed world slowdown than suggests that emerging markets are no longer they have been in the past. Better fi scal balance dependent on growth in the developed world to sheets, increasing domestic demand, massive public maintain their own growth rates. Over the past infrastructure programmes and high savings rates year, however, the decoupling thesis has been have all helped. Furthermore, growth in trade amongst emerging economies has risen substantially. Therefore, the dependence on the Correspondence: David da Silva, Nomura Asset Management UK Limited, United States, Europe and Japan is less, but still Nomura House, 1 St Martin ’ s-le-Grand, London EC1A 4NT, UK. important. 36 © 2009 Palgrave Macmillan 1478-5315 Pensions Vol. 14, 1, 36–46 www.palgrave-journals.com/pm/ Case for emerging markets and regional versus global management considerations 3 year cumulative performance (%) to September '08 110 110 90 90 70 70 50 50 30 30 10 10 -10 -10 Jul-06 Jul-08 Jul-07 Jan-06 Jan-07 Jan-08 Mar-06 Mar-07 Mar-08 Nov-06 Nov-07 Nov-05 Sep-05 Sep-06 Sep-07 Sep-08 May-06 May-07 May-08 MSCI World S&P 500 MSCI EM Figure 1 : Cumulative performance: 3 years. Source : Datastream, Nomura. Monthly data as of 30 / 09 / 2008. Over the longer term, the extent of trend should be consistent going forward. This outperformance has been striking. Figure 2 shows chart puts into perspective the fact that despite MSCI EM performance in US dollar over the 20 emerging countries only accounting for a quarter years up to the end of July 2008 (the longest of world GDP, they account for 50 per cent of period available, as this was the inception of the global GDP growth. date of the index). Another notable feature is how strongly the Growing, but is this refl ected in the markets have collectively bounced back following market? the highly publicised market crises of the late Emerging economies are growing, but is this 1990s and early 2000s, including the South East being refl ected in their share of global market Asian crisis in 1997, followed by the Russian debt capitalisation? There is a relationship in many default crisis and the dot.com fallout. Despite countries whereby their relative share of global these knocks, these markets have recovered very GDP converges to a similar proportion of global sharply. market capitalisation. As an illustration of this, Figure 4 shows this relationship for Japan. In the What has been driving this late 1980s, during the Japanese stock market performance? bubble, Japanese equities accounted for 50 per Strong economic growth has been key in driving cent of global market capitalisation, despite the this outperformance. Figure 3, depicting real GDP economy only accounting for 15 per cent of growth rates, highlights how emerging markets world GDP. After the bubble burst, the two ratios have seen growth accelerate over the past few eventually came into line with Japan’ s market years. From the narrow growth advantage in the capitalisation and GDP percentage ratios, levelling 1980s and 1990s, this differential has increased to off near 10 per cent . unprecedented levels in the past few years. The Figure 5 highlights the fact that despite the World Bank is likely to revise down the estimated aforementioned growth advantages, emerging 2008 and 2009 fi gures in due course to refl ect market capitalisations lag far behind their the impact of the credit crunch, but the overall contribution to the global economy.