Shinsei Bank Ltd., the Japanese lender partly owned by J. Christopher Flowers, tied up with Russell Investments Ltd. to form a sovereign-bond fund aimed at regional banks cutting reliance on Japan government debt.
Russell, the asset manager and creator of global indexes bearing its name, and Tokyo-based Shinsei started the private fund earlier this month with 4 billion yen ($45 million) in assets, Akira Oishi, general manager of Shinsei’s asset management products division, said in an interview yesterday.
Shinsei is expanding asset management services for Japan’s 105 regional banks as they pare holdings of the nation’s bonds and seek higher returns from less-indebted nations. The fund will invest in five-year notes of countries with a debt-to-gross domestic product ratio below 80 percent, such as Australia and South Africa, Oishi said.
“Japanese banks are massive holders of JGBs, and a 1 percentage-point rise in benchmark yields could give a blow to their earnings,” said Tsuyoshi Ueno, a Tokyo-based senior economist at NLI Research Institute. “Regional banks need more risk management.”
Regional banks held a combined 43 trillion yen of Japanese government bonds as of Nov. 30, according to central bank data. The country’s benchmark 10-year note yielded 0.735 percent at 11 a.m. in Tokyo.
Japan’s debt load is more than twice the size of its GDP. Its bonds returned 1.8 percent last year, compared with 5.5 percent for Australian government debt, according to Bank of America Merrill Lynch data.
The Shinsei Russell Intelligent Government Bond Fund also holds debt from Mexico, Brazil, Chile, Poland and the Netherlands, according to Oishi, who aims to expand the fund to 10 billion yen in assets.
Russell, which manages about $159 billion in assets, will manage the fund.