Active fund managers already face a hard time convincing asset owners of their capabilities, with more and more big asset owners in Asia turning away from active and embracing passive.
For Mark Konyn, the chief investment officer of pan-Asian insurance group AIA, there is little sign of that changing.
In a one-to-one interview on stage at AsianInvestor’s 14th Asian Investment Summit, Hong Kong-based Konyn said traditional fund managers, particularly on the equity side, tend to believe short-term underperformance to be something that will pass. But that has not turned out to be true, particularly since the global financial crisis.
“The results of managers waiting for things to improve has created a sort of structural shift in the way that asset allocators, in particular asset owners are responding,” he said at the event held in Hong Kong on Tuesday. “Hence, we’ve seen that massive gravitational pull towards passive strategies. We’ve also seen factor investing becoming more prevalent.”
He spoke of a general “disillusionment” with active management.
Konyn is not alone in his scepticism. The CIOs of the Government Employees Pension Service (GEPS) and Public Officials Benefit Association (Poba) in Korea have also said that they are struggling to find active funds anywhere offering good value and thus passive equity products, especially exchange-traded funds (ETFs), are gaining appeal.
“I don’t think that active managers are actually active; they are not creating alpha. And there is not much difference between these active managers in terms of performance,” Lee Chang-hoon, GEPS's CIO at an AsianInvestor event held in Seoul in April.
So instead, as an Invesco survey released in November showed, large and relatively sophisticated institutional investors are increasingly embracing factor investing, a semi-passive strategy.
"Given that the factor investing experience has been largely positive for those institutions with exposure, we would expect there to be a continued increase in segregated mandates among Asia-Pacific institutions [in order to gain exposure to factor investing],” said Stephen Quance, Asia-Pacific director of factor-based investing at Invesco in Singapore.
Konyn said some asset owners are increasingly bringing assets in-house because, if they have sufficient capabilities, this can bring significant cost advantages.
However, asset owners are also eyeing specialists to externally manage some of their assets.
“The relationship with external managers [is moving] away from generalists and more towards specialists,” he said. “So both themes are playing out, where asset owners are bringing assets in-house but also using deeper specialisation.”
That suggests fewer relationships and partnerships with generalists and a more dispersed allocation across more deep-rooted specialisations.
"Obviously that impacts us in terms of the way we perform our due diligence ... and interact with external managers,” Konyn said.
Delegates at the conference this week also heard that as the in-house expertise of asset owners increases, so too will what they demand of external managers, such as timely provision of comprehensive data.
“Outsourcing can’t just be seen as deploying capital with a benchmark target and then getting quarterly or yearly performance reports,” Benjamin Rudd, Prudential Hong Kong's chief investment officer, said. “Managers need to be able to provide all data into our system day by day on cash levels and risk parameters. It has to become a cooperative relationship.”
Asset owners have been increasingly building up their in-house capabilities in recent years as low yields increase the demand for outperformance. As a result, the relationship between asset owners and asset managers is changing as asset owners become much more involved in terms of their oversight and the conversations they hold with managers on how to optimise portfolios, Rudd said.