After booking losses on the investment, nomura Holdings Inc. might use hedges to limit further hits from its stake in a US mutual fund manager.
Yoshitaka Otsu said Japan's largest brokerage will consider mitigating measures, including hedges to reduce the earnings impact of its holding in American Century Investments. He said that Nomura is not contemplating a divestment of the stake or making the closely held US asset manager a subsidiary.
The unrealized losses stemming from a dip in the asset manager's valuation - amount to 37.3 billion yen $280 million over six months. The rise in volatility driven by the Federal Reserve's rate increases is complicating Chief Executive Officer Kentaro Okuda's plan to stabilize revenue because of the markeddowns in 2021, a rebound from gains in 2021 when governments pumped money into markets.
The profit for Nomura fell to the lowest in five quarters in the three months to June due to American Century, which has assets under management of around $231 billion. Management sees the volatility associated with ACI as a huge challenge to be worked through, Chief Financial Officer Takumi Kitamura said on a call with analysts Aug. 3.
Under one option, Nomura could be linked to a basket of publicly traded asset managers with operations similar to ACI, according to Hideyasu Ban, an analyst at Jefferies Financial Group Inc. in Tokyo. He said that trades would generate returns should ACI's valuation fall, helping to cushion the blow.
In 2016, Nomura bought a stake in the Kansas City, Missouri-based asset manager for around $1 billion. Since then, the growth from the roughly 40% non-controlling interest has largely added to returns at the Japanese firm, helping to soften the impact of volatile trading revenues and a decline in the retail division serving local individual investors.
The investment management division, which includes the American Century stake, is Nomura's second biggest contributor to pretax income in the year ended March 2022, along with funds, leasing, and private equity investment teams.
As Russia's invasion of Ukraine and rising inflation sent global markets tumbling, unrealized losses from ACI accumulated recently. After interest rate hikes have made existing bonds less attractive, investors have fled fixed-income securities. The US shares have seen the worst selloff in half a century in the last six months.
Japan's largest lender, Mitsubishi UFJ Financial Group Inc., took a charge earlier this month to reflect unrealized losses on the bond portfolio of its US banking unit.
Nomura markets mutual funds under their strategic partnership to retail clients in Japan, while the US firm offers the brokerage's products in America.
Nomura calculates the fair value of its exposure to ACI every quarter based on the asset manager's performance and economic and market indicators.
Michael Makdad, an analyst at Morningstar Inc. in Tokyo said that if financial accounting volatility leads to a higher cost of capital, it is worth it to invest in hedges.
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