The past few years have amply demonstrated why the world’s most successful asset owners combine process discipline with hard work, talented personnel and a willingness to embrace new opportunities.
Some of this year’s winners demonstrated global standards of sophistication and knowhow, while others have been expanding their capabilities amid increasingly unpredictable market conditions.
It was not easy to pick the winners. In addition to gaining self-nominations, we sought out the advice of some of the most talented and experienced advisers and consultants in the markets. And we invited a small panel of judges to volunteer their expertise and knowledge to assess applicants, and suggest their own. That still led to some highly competitive categories, in which we had to choose between impressive organisations.
These awards are a testament to the dedication with which the region’s best institutions take the management of their assets. As the world increasingly traverses a period of political uncertainty and inferior fixed rate returns, the need for investors to be nimble and open to new ideas will continue to mount.
We begin with our institutional investor category awards by explaining why the Hong Kong Monetary Authority was the top reserves management institution, and UniSuper stood out as the leading pension fund.
RESERVES MANAGEMENT INSTITUTION
Hong Kong Monetary Authority
The de facto central bank of Hong Kong has become a gradually more prominent investor.
True, the Hong Kong Monetary Authority (HKMA) remains coy about its specific investment objectives and targets. It cites its need not to offer ideas about how it invests its HK$4.23 trillion ($540 billion) Exchange Fund, the investment portfolio split between several areas, in case it impacts speculation on the Hong Kong dollar or city’s economy. Of the Exchange Fund’s total assets under management, HK$3.62 trillion sat in foreign assets at the end of September.
HKMA has slowly been expanding its investing credentials, and in particular it’s become a strong advocate of environmental, social and governance (ESG) principles. It underscored this by signing up to the United Nations’ Principles of Responsible Investing in August, which made it only the second central bank globally to do so.
In addition, a senior executive of HKMA told AsianInvestor that it has introduced ESG demands of its external managers, and is seeking to implement them across all parts of its investment portfolio. The Exchange Fund team now incorporates ESG in their investment planning and will opt for an ESG-friendly investment over a non-compliant comparable asset, assuming similar risk-returns.
In addition it joined the NGFS, a central bank network that’s aim is to spread green finance across financial systems. HKMA became a member in September, and it has already demonstrated its ESG credentials, pushing banks to offer green finance, establish an assessment framework to work out how ‘green’ they are, and also conduct its own green bond investing.
Senior executives, including now-CEO Eddie Yue and deputy CEO Arthur Yuen, have also offered public statements to the central bank’s commitment to ESG and green finance.
Fund managers say HKMA has also been making internal changes, seeking to simply its external mandate process in order to make it easier to understand what it wants and how it makes its decisions. Those should be welcome as the asset owner navigates an uncertain investment environment – and hopefully reverses the HK$80.97 billion loss that the Exchange Fund and its subsidiaries reported at the end of 2018.
A perennial top performer among Australia’s superannuation funds, UniSuper enjoyed another strong financial year across the 12 months to June 2019.
Its balanced fund was reportedly the joint-top performer of all its peers across this period, returning 9.9%, while it offered an annualised 8.81% over 10 years. That sort of performance would have made its members, who largely comprise of university staff members and teachers, very happy.
UniSuper is famous for being run in a fairly similar manner to an investment bank. It has strong team of 50 experienced in-house investing experts who focus on sniffing out good investment prospects. And as market returns have lessened, UniSuper has focused on having its in-house team manage more of its portfolio; close to two-thirds of its funds are handled by its own team.
A key benefit of this approach is its ability to quickly identify and execute investments, as opposed to having direct external managers to do so.
Interestingly, UniSuper has been relatively cautious in the private equity space, unlike many of its peers. The super believes valuations in many cases are too close, and sometimes even equal to, publicly listed peers.
Instead, CIO John Pearce has explained his preference for “fortress” stocks – companies with business models that tend to be monopolistic and disruption-resistant in nature. An example is its top stock holding, in road toll operator Transurban.
This doesn’t mean UniSuper doesn’t like alternative assets. Indeed, as AsianInvestor was going to press, UniSuper was reportedly exploring investment possibilities in private loans. It is close to offering a A$200 million mandate focusing on high yield senior secure loans with Tanarra Credit Partners, as well as speaking with a unit of Mitsubishi UFJ Financial Group about possibilities.