The head of asset allocation at one of the world's largest pension fund managers has outlined the development he would like to see in Asian markets before starting to invest more significant sums.
Ronald Wuijster, head of asset allocation and a board member at APG Asset Management, which manages four Dutch pension funds, spoke of the need for improved operational and financial infrastructure in the region.
He also raised questions about the quality and consistency of trade clearing, strength of regulation and the safety of ownership rights. "A problem in Asia is that growth doesn't always translate into investment returns," he told AsianInvestor.
But he noted that APG likes illiquidity premium, noting that it would look to allocate more into emerging credit if these markets developed more. At the moment it invests more in the US and Europe.
The largest fund that APG looks after is ABP, which oversees the pensions of 2.8 million government employees totalling €334 billion (($396 billion). Wuijster noted that ABP allocated just 1.3% of its portfolio to emerging market debt.
While emerging market equity accounts for a more material 8.5%, that compares with 28% allocated to developed market equity and 30% to fixed income in general.
Separately, he pointed out that alternatives make up a big portion of ABP's portfolio, at 24%. "We would also be interested to fund more private equity firms and hedge funds in [Asia]," he explained.
He also said he viewed falling valuations in Asia as an opportunity, especially given APG’s long-term perspective. “Our long-term investment horizon means we won’t be forced to sell if valuations drop; weakening markets are an opportunity for us to build positions.”
Wuijster cited the global market sell-off in 2008 and the first quarter of 2009, which saw purchases by his funds grow their emerging market equity holdings from €6 billion early in 2009 to €31 billion today.
In terms of what makes his funds’ asset allocation distinctive, Wuijster identified a large degree of diversification and an ability to keep costs low.
In terms of containing expenses, he cited APG’s establishment of a treasury division that can create pooled positions for non-listed derivatives, reducing clients’ costs and their operational and counterparty risks.
Of APG’s listed equities investments in Asia, approximately 17.5% is in Chinese companies. None of this is via the local A-share market.
The firm also manages funds for the Netherlands’ construction sector; its quasi-government housing agencies; the company’s own pension fund; and the funds of its insurance company that provides products targeted at additional income security.
APG’s predecessor organisation split off from the Dutch finance ministry in the early 1990s and APG dates its modern history from 1993, when it was granted full freedom to invest in an unconstrained way around the world.
Since then it has achieved a 78% investment return with a 22% contribution rate from pensioners across all funds, at an average return of 7.5% per year.
A full interview with Ronald Wuijster will appear in the February edition of AsianInvestor magazine.