Institutional investors the world over have taken a big hit from the coronavirus pandemic, but those in Asia Pacific are the most likely to respond to portfolio losses by axing external managers and/or altering their long-term asset allocations.
Fully 60% of Asia Pacific investors are already firing or are likely to fire managers largely as a result of their 2020 performance, according to a global survey of 368 asset owners conducted last month by consultancy Bfinance*. The figure falls to 54% for North America and 51% for Europe (see first chart below).
There are also variations by investor type. Globally, insurers are less likely to be terminating managers, with 58% saying they’re “unlikely” to do so based on disappointing 2020 performance. That view is shared by only 18% of family office respondents and no sovereign wealth funds. The latter is particularly surprising given their supposedly mega-long-term approach to investment.
Certainly, Norway’s state oil fund does not tend to rush into rapid decisions when it comes to its external managers. Erik Hilde, its head of external strategies, told AsianInvestor last month that sometimes the institution allocates more to managers that are underperforming in which it has confidence, taking the view they will recover their losses over time.
The discrepancy between Asia and other regions is even starker in the Bfinance report when it comes to investors changing their strategic asset allocations (SAAs). Four in 10 (39%) of Asia-Pacific asset owners have altered their SAA since the onset of the pandemic or plan to do so in 2020, compared to 24% globally and just 15% in North America (see chart below).
A CFA study published earlier this month, entitled Is the coronavirus rocking the foundations of capital markets?, reported similar findings among its members, which include individuals working at organisations such as asset and wealth managers, institutional investors and corporates.
Around a quarter (26%) of CFA respondents globally said that market volatility had forced their firm to alter its investment management processes or allocation choices significantly. That figure rose to 33% for East Asia, 34% for Southeast Asia and Oceania and 38% for South Asia.
Yet despite Asia-Pacific institutions being keener to move faster on portfolio changes, they are more cautious about where to put their money now, the Bfinance survey shows. Some four in 10 (38%) said that they were underweight risk assets now, compared to 29% globally and just 21% of investors in North America.
Moreover, fewer Asia-Pacific investors are likely to take a tactical view on risk assets now: 44%, versus 52% in Europe and 55% in North America.
Asia-Pacific investors, however, were by far the most interested among all regions in distressed or opportunistic strategies that seek to benefit from the pandemic fallout. Nearly half (47%) said that they had already invested in such strategies while only 18% said that they were not interested in such investments.
Elsewhere, 37% of North American respondents and a startling 62% of Europeans were not interested in distressed/opportunistic assets.
* They represented pension schemes (about half the total), insurers, endowments, foundations, family offices, sovereign wealth funds and other entities, with combined invested assets of around $11 trillion. One fifth (21%) of respondents were from Asia-Pacific (including the Middle East), 45% from Europe and 34% from North America.