Asian asset owners talk allocation issues

Hong Kong’s Hospital Authority Provident Fund, Jardine Matheson’s pension scheme and Timor-Leste’s investment fund discuss their challenges.
Asian asset owners talk allocation issues

A diverse group of institutional investors gave frank assessments of the challenges they face and how they tackle them in a panel at AsianInvestor’s flagship summit in Hong Kong recently.

Peter Ryan-Kane, Asia-Pacific head of portfolio advisory at Towers Watson, chaired the session.

One move being made by Hong Kong-based conglomerate Jardine Matheson is to shift away from using the Barclays Global Aggregate as a benchmark for its fixed income portfolio, says group treasurer Adrian Teng. He is looking to explore other options, saying he finds it a "worthless index".

This reflects a growing trend among institutional investors: to consider ways of benchmarking debt markets that don’t rely on market capitalisation, for example.

Jardines runs a $20 billion pension fund whose portfolio is globally diversified and has a very long-term strategic asset allocation, says Teng. The scheme – which is 80% defined benefit, 20% defined contribution – has an allocation of 50% equities, 30% fixed income, 15% hedge funds and 5% commodities.

Teng says the firm looks at risk volatility on a consistent basis and looks to rebalance tactically, on a quarterly basis, to adapt the plan to changes in the market. Over the past 10 years, the allocation has “stayed fairly stable”, though there has been some “tweaking around the margins”.

“By and large, we follow a very long-term time horizon; we don’t try to swing around asset allocations much,” he adds.

Other asset owners highlight their moves to broaden the range of asset classes they invest in. Cosme da Costa Araujo, adviser to the National Directorate of the Petroleum Fund of Timor-Leste, says the fund last year made the first change to its investment policy since inception in 2005.

The new approach allows for a maximum of 50% invested in equities, a minimum of 50% in fixed income and up to 5% in other investments. The fund had started off much more conservative, and the shift includes a desire to diversify into different asset classes and boost returns.

Meanwhile, Hong Kong’s Hospital Authority Provident Fund Scheme has 33,000 members, making it tough to align all members’ interests, says Doris Ho, assistant director of investment at the fund. A key risk these days – particularly in China and Hong Kong – is inflation, she notes.

That is an issue for the scheme, as it has been seeking to boost home bias to China and Hong Kong. It will be adding China A-share exposures soon, having recently received its first qualified foreign institutional investor quota that allows it to invest directly in mainland assets.

Asked by Ryan-Kane what message the panellists would like to leave the audience with, one thing they all agreed on was the importance of asset managers finding out what investors want and creating products around that, rather than simply pushing existing products.

“You may think your products are different, but they really are all the same,” says Teng. “You need to get to know your client’s DNA before trying to flog products.”

Marco Montanari, regional head of Deutsche Bank’s db X-trackers ETF unit, was on hand to respond on behalf of fund managers. He said clients should be realistic with what they ask for from product providers. “If interest rates are 0%, you can’t realistically get a 20% return.”

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