AsianInvestor’s annual institutional excellence awards are designed to identify, recognise and celebrate the asset owners of the region that are either best-in-class in their institutional areas or geographies, or are fast strengthening their capabilities and worthy of notice.
Asset owners across the region are operating at an increasingly high standard in many areas of their operations. In addition, market conditions have been turbulent, making for tougher investing.
While that has made choosing the final winners more difficult, it is also pleasing to see a growing crop of impressive institutions across the region.
This year's winners by country and region were therefore particularly impressive. They combined continued improvements in their processes and internal resources with an astuteness to create increasingly complex investment portfolios amid tougher and less predictable markets.
Prudential (Hong Kong)
Rising fixed income markets are generally a good thing for life insurers, but weakening regional currencies can be more tricky to navigate. Prudential is fortunate, then, that one of its core Asian markets – Hong Kong – enjoys a currency that rises and falls in tandem with that of the US.
However, the asset owner has also been making definitive strides across the region and in Hong Kong to improve its own capabilities.
Benjamin Rudd was hired as Prudential's chief investment officer (CIO) for the territory in November 2016 and has proven an effective steward of its assets in the two years since. Fund executives and consultants have told AsianInvestor that the insurer's investment team has also become increasingly amenable to interesting or unusual investment ideas during his time at the helm.
One impact of Prudential’s multinational existence is that it has to live up to regulatory standards that can be more onerous than those demanded in local jurisdictions. An example is its need to fully incorporate Solvency II capital regulations in Hong Kong, something local or regional insurers have not had to do, instead of sticking to the city’s less onerous requirements.
That has entailed a sometimes-painful upgrade of its governance capabilities, which leaves it future-proofed and well prepared for when Hong Kong’s insurance authorities do decide to raise their capital rules.
Other changes include updating its internal investment processes that mean it can offer recommended investment portfolios for its customers, which are based upon its own core investment holdings. This strategy has allowed Prudential to offer customers more investment options while keeping them in line with its own broad investment views.
It appears to be working too. More customers in Hong Kong have been buying the company's products, giving it a 14.6% market share and making it the city's second-largest player.
Prudential's Hong Kong strengths also helped the company report a 14% increase in operating profits from its Asia businesses in the first half of 2018.
While the pension fund is barred by legislation from investing directly, it can and does wield its size to raise the expectations it has of the fund houses that operate on its behalf.
GPIF is known as a parsimonious fee payer and is very demanding to boot. This has led it to directly link fees to alpha performance and experiment with artificial intelligence as it seeks quantitative ways to assess its asset managers and see how they measure up against their own promises.
The fund maintains an emphasis on environmental, social and governance (ESG) principles too, which Mizuno views as a means to ensuring good behaviour among its fund managers and companies into which they invest, along with pressuring them to avoid the sort of catastrophes that might be an existential threat to capital markets.
Climate change sits high on this list of concerns and it’s notable that GPIF doesn’t just demand that asset managers working for it demonstrate they instil ESG concepts into their investment portfolios.
In addition, GPIF announced it would invest $10 billion against two new international ESG benchmarks from S&P Dow Jones Indices in September.
GPIF is determined to wield its hefty bulk to ensure it is best served by asset managers as it attempts to meet the global problems it sees as most threatening its long-term performance.
GPIF's performance hasn’t been too bad either. The fund reported that AUM returned 3.42% in the July to September quarter, rising by ¥5.4 trillion ($47.9 billion).
The pension fund's willingness to bring its domestic bond allocation to the extreme lows of permitted ranges (25%), while allocating more to foreign stocks and bonds (around 51%), is evidence that it is willing to do what it takes to maximise returns.