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.
The organisation enjoyed strong investment results in 2017. It reported that the Exchange Fund, which it uses to invest for the longer term, saw HK$231.11 billion ($29.57 billion) of investment income versus just HK$50.54 billion in 2016.
This year has been tougher though as equity markets have corrected, the US and China have embarked on an increasingly broad trade spat and US interest rates have continued to rise. As a result, the HKMA reported just HK$27.3 billion of investment income for the first six months, mostly from bonds. That was down from HK$136.2 million for the same period of 2017 – a sum it largely gained from equities.
Still, the fund’s total assets rose to HK$4.1 trillion at the end of June, up HK$85.4 billion compared with the end of 2017.
And HKMA is aiming to use its investments for good and to deepen Hong Kong’s financial market. In June it said it will actively invest in assets that have large elements of environmental, social and governance (ESG) sustainability and has created investment guidelines along these lines.
Importantly, it has also said it will require external fund managers to incorporate ESG when investing funds from HKMA’s Exchange Fund.
It’s looking at direct investments too. Deputy chief executive Eddie Yue said the de facto central bank had done substantial due diligence on wind power projects in South America and Europe and noted that ESG does have demonstrably positive effects for returns.
Altogether, that is helping to reinforce the Hong Kong government’s efforts to promote the city as a centre for green finance via both green bonds and green lending.
When it comes to standout pension funds in Asia, few can boast the sophistication of many of Australia’s superannuation funds. And in Australia, few can point to the sort of astute risk-taking across an array of assets as Hostplus.
The A$33 billion ($23.82 billion) asset owner is no shrinking violet when it comes to investing. Chief investment officer Sam Sicilia is happy to discuss how the pension fund wants to use its relatively youthful set of contributors – the average member age is 35 – to add relatively risky but high-return assets to improve its long-term investment returns. These include infrastructure, real estate, private equity and other alternative asset classes.
And most recently it has begun seeding small firms via venture capital, both directly and through general partners. As deputy chief investment officer Greg Clerk said, “even if these don’t make any money if it helps the rest of our portfolio understand the future [then] that’s a good investment”.
The proof is in the pudding, or rather the returns; Hostplus’s benchmark MySuper balanced fund returned 12.5% for the 2017-2018 financial year.
That makes it the top performer in the industry – over one, three, five, seven and 15 years – which is some track record, and Hostplus has received multiple awards for the investment approach of its funds.
Sicilia believes Hostplus’s approach to risk-taking and diversification, combined with its long-term focus, means it can ride out the prospect of rising volatility in equity markets and shifting interest rates.
The pension fund has reportedly built up a set of defensive assets in hedge fund-like strategies that it can easily cash out of, relatively speaking, in the event of a financial market plummet, before buying into equities at lower valuations.
Sicilia is also something of a contrarian at times. When many of his large peers are busily insourcing their investment capabilities, he has openly said he sees external managers as playing a vital role in Hostplus’s investing; the rationale being that a set of top-notch external managers will always boast more intellectual capability than an internal team, no matter how well assembled.