Asia’s standout asset owners: Korea, SE Asia, Taiwan
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.
If one investor in Korea stands out for helping to push out the boundaries of what the country’s pension funds can do, it’s Korea Teachers Credit Union. As one of the largest pension funds, it has a sizeable profile.
And under chief investment officer Kang Sung-seog it has delved deeply into the alternatives world, buying up assets in a variety of offshore spaces in order to hit its annual return targets. It has little choice; the nation’s populace is ageing fast and it needs to ensure it keeps accumulating assets so it can afford to pay for them in the decades to come.
Kang has been open about his willingness to buy across a variety of asset spaces, in order to secure longer-term returns. As he has told AsianInvestor, it's been increasingly essential for it to buy offshore and alternative assets. And with prices rising in private equity and real estate as other asset owners have sought investments into these spaces, Kang has expanded his investment horizons, looking to opportunities in mezzanine financing and direct lending to companies.
Infrastructure assets are also seen as complementary to a fund that is eyeing how to make money over 10 to 20 years, not one to two. In March 2018, KTCU partnered with fellow pension fund Public Officials Benefit Association and others to invest W200 billion ($179 million) into Macquarie’s fourth North American Infrastructure Fund.
Kang has been willing to take advantage of rising US interest rates too, adding to his pension fund’s allocations to US Treasuries. It’s not an easy process, however, as hedging the cost of this can be 100 basis points or more, which takes a substantial chunk out of the returns.
Singapore's GIC is seen by many fund houses as being so sophisticated in some areas that its team of internal experts know as much or more as the investment professionals they ask in to discuss ideas with.
The $390 billion sovereign wealth fund is a highly active investor and is happy to directly buy into alternative assets that fit its long-term view of the markets. Among the acquisitions GIC has made in the past year alone are those of a majority stake in French real estate firm AccorInvest, a Dutch speciality chemicals business, a Paris office block for €465 million ($530.8 million) and an unspecified stake in Danish aircraft leasing company Nordic Aviation Capital.
Most recently, in November, GIC paid $150 million to take its stake in Indian bank Kotak Mahindra to 1.36%. It also teamed up with Australian real estate investment trust Dexus to form a A$2 billion ($1.44 billion) trust to invest in logistics properties in Australia. The Singapore investor initially owns 25% of the core portfolio but can acquire another 24% by June 2020.
And while being an active investor GIC has ensured good returns. In its last annual report in July, it reported a 6.6% return on assets over the previous five years.
That said, the future looks tougher; chief executive Lim Chow Kiat warned that returns could slip as volatility rises.
In addition, the NT$3.93 trillion ($127 billion) state pension fund offered its first domestic environmental, social, and governance (ESG) mandate totalling NT$42 billion ($1.4 billion) in May. Director general Tsay Feng-Ching told AsianInvestor in June that its growing focus on ESG was partly because “as a retirement pension fund, BLF’s ESG investment can lead the trend in the society and raise the awareness”.
Then, in November, it invited bids for a NT$42 billion absolute return equity mandate. It followed this by asking for proposals for a $1.5 billion emerging markets equity mandate.
Looking to buy into emerging markets after a torrid year of performance might appear an odd move – or highly astute, given they are relatively cheap now and BLF has the institutional patience to await a return in their fortunes.