Asia's top investors: CSC, Future Fund, GPIF in focus
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 superannuation fund, which represents employees of the federal government and military personnel, began investing in its governance framework over 10 years ago. Its priority was to ensure its members understood what the organisation does and how it affects their savings, so they could make the most informed choices.
Part of that is a report on its website that covers its investment portfolio performance and which goes into some detail about each of the asset areas it invests into.
CSC has focused on several governance goals. These include a focus on ensuring transparency and accountability across the organisation, such as rapid decision making, creating clear and transparent investment objectives for its 18-strong internal investment team and a full assessment of the probability of success in hitting them.
Members of the senior investment team have an average of nine years at the organisation and 23 years of overall investment experience; a level of continuity that has ensured stability and better cooperation.
They’re a diverse bunch too, with a strong gender balance (including chief investment officer Alison Tarditi) and many nationalities, which ensures a variety of viewpoints.
It divides its investment universe across 12 investment risk factors, overlayed across an approved universe of 24 types of asset or strategy. Internally, it aims to ensure all investment team members fully understand their responsibilities for taking particular decisions and are clear about the amount of risk they are allowed to take on.
The super has been focusing on long-term risks on its portfolio too; to combat this it has attempted to integrate analysis of long-term risks such as environmental, social and governance (ESG) factors into its investment decisions.
Everybody agrees that technology is going to play an increasingly important role in investment but relatively few asset owners have genuinely grappled with how best to take advantage of it. Future Fund is one of those few.
The A$149 billion ($107 billion) sovereign wealth fund has spent three years investing in its own technology, data and analytics capabilities to better extract information from its own portfolio to analyse returns and spot new opportunities or areas where investments are not working.
That is useful for both internal investment but also when speaking with and assessing external asset managers.
The fund has also focused its investment priorities on the role of technology, particularly disruption, with CIO Raphael Arndt warning market participants that today’s investments could prove worthless tomorrow, given rapid technological changes and the need to address climate change.
It’s practising what it preaches too and in November it led a A$140 million round of investing for Rocket Lab, a company that designs small rockets.
That is part of a broader attempt to invest into venture capital, an area that Future Fund says has limited opportunities, which has led it to look offshore. In November it also awarded alternative mandates to US groups Key Square Capital and Clocktower, the latter of which is a hedge fund seeding and technology investment group.
In the more traditional asset classes, Future Fund has been seeking to cut costs. It slashed its performance fees to regular external equity managers by A$54 million for the fiscal year ending June 30 as it shifted regular equity investments to a passive approach.
As a result of these changes, Future Fund hopes to continue its strong track record of performance, having recently reported an average annual return of 9.2% for the 10 years to September-end. For the one-year period it reported a 10.7% return.
INNOVATION
The willingness of GPIF to push open boundaries in Japan continues to impress. Very few countries can boast that their largest asset owner is as reform-minded.
The fund has already been recognised by AsianInvestor in previous years for its commitment to ESG and this continued this year with two new passive equity global index mandates, as GPIF seeks to enhance its ESG-based investing into overseas assets as well as those onshore.
But it is GPIF’s approach to external manager fees that particularly caught our eye this year. CIO Hiromichi Mizuno has long been convinced that many active asset managers do not earn the fees that they command, and indeed a GPIF analysis of the performance of its active managers over a 10-year period confirmed this suspicion.
That helps to explain why most of GPIF’s assets are invested via passive funds.
GPIF hasn't given up on active fund managers entirely. But Mizuno and his team implemented a new fee structure in March, in which the active managers that it employs have to agree to a passive-equivalent level of fees if they fail to outperform their index benchmarks. The upside is that they receive a rising level of fees the more they outperform.
In essence, GPIF wants active managers to demonstrate – and be rewarded for – genuine additional value.
It’s been a controversial step and much disliked by some active fund houses, which complain that they have additional costs to bear, including GPIF’s desire to also focus on ESG. Some have even reportedly stopped pitching for the pension fund’s assets.
But this new approach, combined with GPIF’s interest in using artificial intelligence to analyse active-manager investment approaches, is also forcing fund houses to better demonstrate they are worth the fees they want, and that they do what they say when investing.
For the industry’s future, that can only be a good thing.