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Japanese investor interest in NZ plumps up Nikko funds

Nikko Asset Management New Zealand, the local subsidiary of the Japanese investment firm, said funds under management topped $4 billion for the first time as the country's relatively high yields on offer in a low-interest-rate world attracted foreign investors.

The local fund manager has increased its assets under management by 14 percent in the past 12 months, aided by the lure of New Zealand's high interest rates relative to the rest of the world, it said in a statement. Nikko has targeted Japanese investors in particular, leveraging its Tokyo-based parent's links into the world's third biggest economy. Since the start of the year, Nikko has launched five Japan-domiciled New Zealand dollar denominated funds.

"As the New Zealand team of a Tokyo-based company, we have used our insight into Asia to capitalise on increased Japanese investor interest in New Zealand, particularly the New Zealand bond market," Nikko New Zealand's managing director Peter Lynn said. "From a global investor's perspective, the New Zealand bond market has a high yield combined with a solid credit rating, which is becoming attractive to Japanese investors."

Japan's Global Pension Investment Fund, the world's biggest pension fund with 130.9 trillion yen under management as at Sept. 30, reduced its holdings of domestic bond to just 49.6 percent in third quarter, its smallest allocation ever, and down from 53.4 percent at the end of June.

Nikko said New Zealand has attracted $1.09 billion in stock and bond investment from Japanese retail and institutional investors since 2008.

New Zealand's central bank embarked on tighter monetary policy earlier this year, hiking the benchmark official cash rate four times to 3.5 percent, something it saw as stoking a resurgence of the carry trade, driven by so-called retail investors who can borrow cheaply in their home currency, such as the yen, to invest in higher yielding currencies such as the kiwi dollar.

In its September monetary policy statement, the Reserve Bank saw an increase in New Zealand dollar denominated debt by overseas entities, with total issues averaging $1.3 billion a month in 2014, compared to $650 million in 2013, which itself was up from the year earlier.

Governor Graeme Wheeler yesterday said the bank has limited influence over long-term interest rates, which typically follow major regional economies and global investor activity. The yield on New Zealand's 10-year government bond was recently at 3.91 percent, compared to 0.44 percent on its Japanese equivalent.