Mercer acquires multimanager BFC to boost delegated investment push in Japan

Mercer acquired Tokyo-based hedge fund multimanager BFC Asset Management Co. in a move its global wealth management chief predicts will accelerate the nascent growth of Mercer's delegated investments business in Japan.

Rich Nuzum, president of Mercer’s global investment and retirement consulting operations, said in an interview that together Mercer and BFC have more than 50 delegated investment – or outsourced CIO – clients in Japan, with combined assets of more than $900 million.

Nobuyoshi Tsumori, BFC’s president, chief operating officer and chief client relations officer, said in a separate interview his firm brings roughly 50 Japanese corporate pension fund clients and $800 million in assets under management to the union.

Messrs. Nuzum and Tsumori said the Mercer and BFC teams will eventually be integrated, but details remain to be worked out.

Terms of the deal weren’t disclosed.

Mercer, the leading OCIO provider globally with $213 billion in assets under management, made Japan the firm’s first OCIO beachhead in Asia ex-Australia in late 2015.

In the interim, Mercer’s Tokyo team made some progress, garnering assets from the local subsidiaries of multinational corporations and Japanese financial institutions, said Mr. Nuzum.

However, in Japan’s relatively competitive multimanager/OCIO marketplace, Mercer’s newcomer status – “we’re really good globally but we’ve only been in Japan for a year” – proved a hurdle in attracting business from corporate and public pension fund clients, he said.

Prospects asked whether Mercer has a “meaningful” footprint in Japan, in terms of clients and AUM. With the acquisition of BFC’s team, managing assets for mostly corporate pension plan clients in Japan, we “suddenly have really good answers to those questions,” said Mr. Nuzum.

Mercer knows the BFC team “very well,” as the firm – with 20 employees – leveraged Mercer’s global investment manager database to serve its hedge fund-of-funds clients, said Mr. Nuzum.

The acquisition of BFC grew out of BFC’s interest in moving beyond partnering with Mercer on hedge fund-of-funds strategies to a broader set of private markets strategies, he said.

Mercer is positioning itself now for faster growth in Japan just as investors in Asia are coming to recognize “the same advantages that investors in the rest of the world” are seeing in moving beyond fund-of-funds products to hire providers offering both customized advice and implementation, said Mr. Nuzum.

A year ago, they “were meeting with some skepticism” about the OCIO value proposition, he said. Now, there are “major tenders out in Singapore and Hong Kong,” and interest in other countries, including China, said Mr. Nuzum. He declined to provide details.

Mercer got its first delegated investment license in Japan two years ago, and more recently obtained licenses from Hong Kong and Singapore. The firm is currently applying for licenses in China and South Korea, he said.

Other major OCIO players, including heavyweight consulting firms such as Russell Investments and Willis Towers Watson, have been competing in Japan for a long time, as have local competitors, Mr. Nuzum noted.

The tie-up with BFC will make Mercer a more formidable competitor – among the top five in Japan, depending on the model, he said. The “aggregate buying power” of Mercer’s more than $200 billion book of business, together with its access to private markets investors, should prove a differentiator, he added.

Mr. Nuzum tied the willingness of Japanese asset owners now to “try different things” – including OCIO strategies – to the challenges they’re facing as a result of Japanese government bond yields hovering around zero.

If the local subsidiaries of multinational corporations accounted for roughly two-thirds of Mercer’s initial group of OCIO clients, going forward the mix could be closer to a third each for multinationals, domestic corporate sponsors and Japanese financial institutions, said Mr. Nuzum.

Up until now, Mercer hasn’t won an OCIO mandate from a big Japanese public fund, although it has gotten to some finals. However the partnership with BFC could provide the local edge needed to begin winning some of those allocations, said Mr. Nuzum.

Douglas Appel is a reporter for Investment News’ sister publication, Pensions & Investments.