Asia Pacific’s largest asset owners grew their assets under management (AUM) at a rapid clip during 2017, but pension funds and insurers are more likely to fall afoul of market volatility this year and will need a broader array of investment instruments.

The top 50 participants of AsianInvestor’s AI300 latest survey of the region’s largest asset owners grew their assets under management (AUM) by 7.67% in 2017. That greatly outpaced the 2.27% rise they had recorded in 2016.

Commercial banks and central banks stood as the largest overall investors in this bracket, while insurers and pension funds comprised about 20% of AUM. Indeed, insurers were among the worst performing asset owners among the top 50; their combined AUM grew by just 0.41%, to $3.4 trillion.

The meagre rise was almost entirely the result of the impact of a falling yen. Japanese insurance companies comprised two thirds of insurer assets in the AI300 and were heavily represented in the top 50, but their AUM is mostly based in yen, which dropped by 11.5% against the dollar between October 2016 and September 2017.

The AI300 survey is quoted in dollars, and on this basis Japan’s insurers’ AUM contracted by 7.38%, nearly cancelling out the double digit growth among insurers from the rest of the region. For example, Dai-Ichi Life Insurance’s AUM grew by 3.2% on a yen basis but fell by 7.4% when converted to dollars, which led the insurer to fall from sixth place to 35th in our survey.

Currency weakness aside, Dai-Ichi Life Insurance enjoyed decent yen-denominated AUM growth in large part because of its equities investments.

“Market price yield of marketable securities in [fiscal year] 2017 resulted in the highest result of 12.1% in domestic stocks,” a Dai-Ichi Life Insurance spokesman told AsianInvestor.

The Nikkei 225 index grew by 23.7% between September 2016 and September 2017, surpassing the 20,000 mark in June 2017 for the first time since December 2015.

The insurer’s returns from domestic stocks more than made up for the miniscule 1.33% that it received from its holdings in foreign corporate bonds, the spokesman added.

PENSIONS GROWTH

Pension funds in the top part of the AI300 recorded more vigorous growth, with their combined AUM expanding 6.57% to hit $2.7 trillion.

This was led by Japan’s Government Pension Investment Fund (GPIF) and Korea’s National Pension Service (NPS), the world’s largest and third-largest pension funds, respectively. Both benefited from the buoyant returns in global equity markets throughout 2017.

GPIF’s AUM increase was in large part down to its investments in foreign and domestic stocks in 2017, especially domestic equities, said a GPIF spokeswoman. It allocated 25.1% of AUM to local stocks in 2017, ensuring an 18.7% growth in AUM on a yen basis. Even discounting the deteriorating exchange rate, GPIF recorded 6.51% asset growth on in dollar terms to $1.4 trillion, enabling it to move up to fourth place in the rankings.

Meanwhile NPS grew its AUM by 15.7% last year to $590.2 billion, which helped it to jump four places to 13th position overall. It also benefited from domestic and global equities investments, which returned 25.88% and 10.62%, respectively. The Korean Composite Stock Private Index (Kospi) rose 23.2% in 2017, and the MSCI Korea Index returned 47.8% in the same period.

Overall, NPS’s investment returns were 7.26% in 2017, its highest result since 2010.

MARKET AND GOVERNANCE TROUBLES

While 2017 provided Asia Pacific’s largest asset owners with a benign environment, this has changed into stormier conditions this year. The Nikkei 225 and the Kospi have respectively fallen 3.85% and 7.52% year to date, and low interest rates and the potential for an economic slowdown have only added to asset owners’ concerns.

It’s led also asset owners to increasingly consider investment possibilities outside traditional asset classes.

“Based on the possibility of domestic low interest rate environment continuation and the possibility of the future economic slowdown in the US, we will continue expanding exposure to fields that are low correlated with traditional assets such as infrastructure and real assets,” the Dai-Ichi Life Insurance spokesman told AsianInvestor.

GPIF is also aiming to grow its exposure to alternative assets, announcing its first infrastructure mandate in January, after issuing a request for proposal for alternative assets in April 2017. The pension fund’s chief investment officer Hiromichi Mizuno told AsianInvestor in March that GPIF is prioritising long term capital risk investment objectives over immediate investment returns.

Korea’s NPS is having to manage a tougher investment environment with internal staffing difficulties. The pension fund appointed Lee Soo-cheol as acting CIO in July, which made him the third executive to hold the position since July 2017. The year’s tougher investment environment looks set to test whether NPS’s latest investment head who can navigate the country’s politics and make the strategic shifts necessary to navigate increased market volatility, trade frictions, and tightening Western monetary policy.

AI300 - Top 50
2018 2017 Institution Date Market Category 2018 AUM($m) 2017 AUM($m) $ Change % Change
1 1 People's Bank of China Mar-18 China Central bank 3,142,820 3,053,567 89,253 2.92%
2 2 Industrial & Commercial Bank of China Dec-17 China Commercial bank 1,584,272 1,400,188 184,084 13.15%
3 4 Agricultural Bank of China Dec-17 China Commercial bank 1,474,699 1,307,294 167,405 12.81%
4 5 Government Pension Investment Fund Sep-17 Japan Pension Fund 1,391,091 1,306,122 84,969 6.51%
5 8 Bank of China Mar-18 China Commercial bank 1,347,264 1,158,303 188,961 16.31%
6 6 China Construction Bank Sep-17 China Commercial bank 1,284,240 1,206,486 77,754 6.44%
7 7 Bank of Japan Mar-18 Japan Central Bank 1,268,300 1,230,330 37,970 3.09%
8 3 Japan Post Bank Sep-17 Japan Commercial Bank 1,210,078 1,396,337 -186,259 -13.34%
9 9 MUFJ Bank Mar-18 Japan Commercial Bank 1,014,685 878,103 136,581 15.55%
10 14 Postal Savings Bank of China Mar-18 China Official institution 841,601 761,658 79,943 10.50%
11 10 China Investment Corporation Dec-16 China Sov. wealth Fund 745,278 743,268 2,010 0.27%
12 12 Bank of Communications Mar-18 China Commercial bank 698,752 542,751 156,001 28.74%
13 17 National Pension Service Mar-18 South Korea Pension Fund 590,227 509,991 80,236 15.73%
14 13 The Norinchukin Bank Sep-17 Japan Commercial Bank 555,065 540,950 14,116 2.61%
15 11 Japan Post Insurance Sep-17 Japan Insurance Company 550,616 629,091 -78,475 -12.47%
16 15 China Development Bank Dec-16 China Commercial bank 523,256 518,547 4,708 0.91%
17 20 Hong Kong Monetary Authority Investment Portfolio Dec-17 Hong Kong Sov. wealth fund 519,191 466,894 52,297 11.20%
18 18 Nippon Life Insurance Sep-17 Japan Insurance Company 486,928 503,546 -16,618 -3.30%
19 16 National Mutual Insurance Federation of Agricultural Cooperatives (Zenkyoren) Sep-17 Japan Insurance Company 473,839 516,454 -42,615 -8.25%
20 21 Central Bank of China Apr-18 Taiwan Central bank 457,130 437,530 19,600 4.48%
21 19 SAFE Investment Dec-16 China Sov. wealth Fund 441,000 474,000 -33,000 -6.96%
22 22 Hong Kong Exchange Fund Mar-18 Hong Kong Central bank 440,300 395,548 44,752 11.31%
23 36 China Minsheng Bank Mar-18 China Commercial bank 431,252 247,004 184,248 74.59%
24 24 Reserve Bank of India Apr-18 India Central bank 420,370 371,140 49,230 13.26%
25 27 Life Insurance Corporation Dec-17 India Insurance company 412,483 328,571 83,911 25.54%
26 32 China Merchants Bank Mar-18 China Commercial bank 398,709 275,044 123,665 44.96%
27 23 Bank of Korea Apr-18 South Korea Central bank 398,420 375,300 23,120 6.16%
28 25 China Life Insurance Mar-18 China Insurance company 385,226 350,163 35,064 10.01%
29 33 Shanghai Pudong Development Bank Mar-18 China Commercial bank 384,318 266,703 117,614 44.10%
30 37 China Citic Bank Mar-18 China Commercial bank 364,176 266,099 98,077 36.86%
31 26 Government Investment Corporation Dec-17 Singapore Sov. wealth Fund 359,000 350,000 9,000 2.57%
32 38 Ping An Life Insurance Dec-17 China Insurance company 319,587 241,715 77,872 32.22%
33 35 Monetary Authority of Singapore Mar-18 Singapore Central bank 287,004 259,237 27,768 10.71%
34 34 Industrial Bank Mar-18 China Commercial bank 281,825 259,732 22,093 8.51%
35 29 Dai-ichi Life Insurance Sep-17 Japan Insurance Company 278,133 300,345 -22,212 -7.40%
36 31 Meiji Yasuda Life Insurance Sep-17 Japan Insurance Company 277,395 288,403 -11,008 -3.82%
37 28 Mizuho Bank Sep-17 Japan Commercial Bank 275,194 313,124 -37,929 -12.11%
38 51 Temasek Holdings Mar-17 Singapore Sov. wealth Fund 270,966 251,026 19,940 7.94%
39 30 National Council for Social Security Fund Dec-16 China Pension Fund 270,286 288,982 -18,696 -6.47%
40 45 China Everbright Bank Mar-18 China Commercial bank 259,954 192,957 66,997 34.72%
41 40 Chunghwa Post Mar-18 Taiwan Official institution 237,806 223,537 14,268 6.38%
42 39 Sumitomo Life Insurance Sep-17 Japan Insurance Company 228,063 239,984 -11,921 -4.97%
43 42 Central Provident Fund Dec-16 Singapore Pension Fund 227,063 211,430 15,634 7.39%
44 61 Agricultural Development Bank of China Dec-16 China Commercial Bank 226,789 121,385 105,404 86.83%
45 48 Bank of Thailand Mar-18 Thailand Central bank 215,615 180,869 34,746 19.21%
46 41 Sumitomo Mitsui Banking Corporation Sep-17 Japan Commercial Bank 215,520 222,758 -7,238 -3.25%
47 46 State Bank of India Mar-18 India Commercial bank 211,722 200,509 11,213 5.59%
48 44 Ping An Bank Dec-17 China Commercial bank 207,252 193,521 13,730 7.09%
49 43 Pension Fund Association for Local Government Officials Sep-17 Japan Pension Fund 202,453 199,296 3,157 1.58%
50 47 Australia and New Zealand Banking Group Sep-17 Australia Commercial bank 197,059 202,401 -5,342 -2.64%
 
SOURCE: AsianInvestor research