The Alaska Retirement Management Board, which oversees investments for the US state’s public-sector pension schemes, is mulling hiring one or more fund houses to manage its first dedicated portfolio of China A-shares.

The $33.4 billion fund is also working on a manager structure study across asset classes, which will incorporate analysis of its Asian investments.

ARMB has spoken to several asset managers about creating an A-share portfolio, but its trustees have not yet decided to pursue such a strategy, Gregory Samorajski, deputy commissioner of the Alaska Department of Revenue, told AsianInvestor earlier this week. He oversees the investment staff who support the trustees for the fund. 

So far two fund houses – Allianz Global Investors and Schroders – have presented to ARMB on A-shares, according to a trustee meeting report dated June 20-21, 2019. 

Gregory Samorajski

Asked whether anything was holding the fund back from proceeding with such a mandate, Samorajski said: "Apart from the normal due diligence and legal requirements, there is nothing restricting the ARMB from hiring a dedicated China A-share manager or any other manager should it decide to do so."

The fund is already invested in A-shares through active and passive global equity managers and holds close to a benchmark weight for China equities as per the MSCI All-Country World ex-US index, Samorajski said. It also has a small amount of exposure to Asia in its private equity programme, he added.

Meanwhile, ARMB is in the process of studying manager structures for each asset class. At its June meeting the fund restructured the US equity class by simplifying passive strategies and terminating several managers and mandates, Samorajski said. It is scheduled to work on non-US equities at the September meeting.

CHINA CALLING

ARMB has been mulling a standalone A-shares portfolio for a while. Back in June 21-22, 2018, the fund indicated that it would engage its investment consultancy Callan to search for a dedicated China strategy. It said its aim was to "gain direct and early exposure to an emerging market country that is expected to increase in allocation in the MSCI emerging markets index".

The fund's increased focus on China A-shares also appears to have been driven by a desire to boost returns. In the December report, ARMB chief investment officer Bob Mitchell had said a narrow component of the emerging markets index, primarily Chinese internet companies, was dramatically outperforming.

Active management in emerging markets has been "challenged" over the past couple of years, added Mitchell, and managers who are underweight Chinese internet platforms will lag the benchmark.

The MSCI Emerging Markets Index fell 14.57% in 2018, though it rebounded to gain 10.58% in the first half of this year.

China's benchmark stock index, the CSI 300, has experienced an even more extreme rollercoaster ride, falling 27% in 2018, before regaining 27% this year as of last Friday (July 26).

In any case, the trend is clear, despite prevailing US-China tensions and discouraging comments from the likes of Breitbart's Steve Bannon. ARMB has joined a growing list of US and other international asset owners moving to boost their exposure to mainland stocks, or exploring whether or how to do so. 

An investment head at a North American pension fund told AsianInvestor that he had attended a private event hosted by a large Chinese asset manager earlier this year: around 80% of the 50-odd asset owners present were US institutions.

And earlier this year the UK’s Coal Pension Trustees – which manages investments for the country’s two legacy coal industry retirement funds – picked two managers to run its first dedicated A-share portfolio.

Asset managers and owners are raising their allocations to A-shares both actively and passively, as Beijing steadily opens its capital markets to cross-border investment and index provider MSCI incrementally raises the weighting of A-shares in its emerging markets benchmark.

Investors interested in the strategies of China’s asset owners can learn more at AsianInvestor's 6th Institutional Investment Forum China, to be held on September 18th in Bejing. Please click here for more details.