In the latest Asset Owner Insights survey, respondents’ overall asset allocations showed that their exposure to both domestic and international public equities have increased compared to the previous Asset Owner Insights survey. As of end March 2022 (Q1), the total public equity exposure was 28% of their assets under management (AUM), up from 16% as of end September 2022.
The latest Asset Owner Insights survey was conducted in April and May, and covered 69 asset owners across Asia Pacific. The surveyed asset owners had a total AUM of $7.5 trillion as of end September 2021.
According to Janet Li, Asia wealth business leader at investment management and advisory firm Mercer, the increase in the overall allocation to equities is due in part to the rebalancing strategies that many pension asset owners have adopted.
Equity markets generally demonstrated high volatility in 2021, with some brief sell-offs observed. The lower share in total portfolio allocation has meant that pension funds with rebalancing strategies have rebalanced back, if the underlying equity exposure made big-enough gains.
“From our observation, these pension asset owners are generally managing their assets with reference to their targets as well as liabilities, and their equity risk premium is still much needed for the growth of their portfolios given longevity risk and inflation,” Li told AsianInvestor.
Mercer’s own Asset Allocation Insights 2022 report, released in July, also showed that exposure to foreign equities has increased for equity portfolios among Asian asset owners, driven by shifts among those based in South Korea, Taiwan, and Thailand.
The Mercer report highlighted that pension funds in Taiwan, for instance, have also announced intentions to increase their allocation to foreign assets over the next few years. Overall, the trend toward larger allocations to foreign equities is expected to continue. The greatest influence on equities portfolio investments were portfolio diversification and long-term capital growth, according to the Asset Owner Insights survey.
Another example of change in approach in terms of equity investment is Japan's Government Pension Investment Fund (GPIF). The world’s largest pension fund, with total assets of ¥193 trillion ($1.5 billion) as of end June 2022, will reduce the balance of its actively managed equity, a minority of its total holdings, by ¥2 trillion and will diversify in the future by increasing the total number of active equity funds the pension fund invests in, starting in North America.
“Active funds in the North American market currently have the most choices. We are considering the direction of selection as early as possible to promote the diversification effect of active funds,” Eiji Ueda, chief investment officer at GPIF, wrote in its Fiscal Year 2021 annual report released in July.
Furthermore, relatively favorable pricing has been seen recently in equity markets in the US and other developed countries compared to previous years of bull markets. Indeed, the Asset Owner Insights survey did show that the greatest allocation preference for equity investments were US equities, global equities, and developed market equities.
The survey was conducted by Asset Owner Insights, AsianInvestor's proprietary data platform. Read more from previous survey results: