In a new weekly feature, AsianInvestor rounds up the latest developments involving asset owners across the region — with commentary on some key decisions.
The National Council for Social Security Fund (NCSSF) said in its annual report on July 31 that the total assets of the National Social Security Fund (NSSF) stood at Rmb2.22 trillion ($323 billion) as of end-2017, of which 42.35% was in direct investments and 57.65% were entrusted assets.
The state pension fund manager noted that 92.47% of its assets were invested domestically, with the balance in overseas assets. NSSF made Rmb184.61 billion in equity investments last year, which earned an investment yield of 9.68%. The pension fund has enjoyed an 8.44% annualised investment yield since being established in 2000, while recording an accumulated investment income of Rmb1 trillion.
The Government Pension Investment Fund (GPIF) reported on August 3 that its total assets under management had increased to ¥158.6 trillion ($1.43 trillion) between April and June, after it notched up a 1.68% investment gain. All-told, the world’s largest pension fund reported ¥2.62 trillion in investment returns, of which ¥2 trillion was sourced from its foreign equity holdings. Its stock holdings rose by 5.17% during the three-month period.
At the end of June, GPIF’s local and foreign stocks respectively accounted for 25.6% and 25.3% of its portfolio, domestic bonds took up 27.1%, foreign bonds made up 15.3%, and short-term assets comprised the remaining 6.65%. GPIF has a 35% target for domestic bonds, meaning it is nearly eight percentage points underweight in this low-returning asset class (its allocation to short-term assets accounted for most of the difference).
Tokyo is looking to establish a sovereign wealth fund to invest into US infrastructure, as the latter country seeks funds to upgrade its aging roads and transport links. The proposed fund is seen as a means of both improving returns on state funds and a improving economic links with the US government at a time when politics have become less predictable under President Donald Trump.
The two countries are set to conduct trade talks on August 9, and the proposed SWF is seen as an effective olive branch, underscoring Japan’s willingness to cooperate with the US. The Japanese government has proposed financing the new fund by issuing bonds – potentially with a zero percent yield – and through public-private loans.
Source: Nikkei Asian Review
The Japanese government is looking at breaking up the Ministry of Health, Labor and Welfare, after deciding that it is too sprawling and unresponsive to the needs of the country’s aging population. The governing Liberal Democratic Party could submit a proposal in August to authorise the break-up, as part of a broader reorganisation of government departments.
The ministry was created by a merger between the former ministries of labor and welfare in 2001. But it has since suffered scandals, including revelations in 2007 that it could not match 50 million pension accounts to their owners. The proposal comes at a time when Japan’s government wants to encourage more workers to put aside money into third pillar, defined contribution-style pension funds.
Source: Nikkei Asian Review
The National Pension Service (NPS) signed up to Korea’s stewardship code on July 30 after more than a year of consideration. The decision of the W636 trillion ($536 billion) pension fund to do so is seen as a means of bolstering transparency and accountability, particularly among the country’s family-run conglomerates.
Under the new code NPS can appoint outside directors and auditors at companies in which it is invested, but it will only pursue proxy fights when it loses money on its investment. Minister for Health and Welfare Park Neung-hoo said of this approach, “when corporate value is seriously undermined, incurring losses on public assets, the pension fund will actively exercise its shareholder rights”.
Separately, NPS could lose two more senior executives, with Kim Jae-bum, head of domestic alternative investments, and Ko Sungwon, who runs its New York office, having offered to resign. The fund has seen an outflow of staff following its 2017 move to Jeonju, a town that is one-and-a-half hours’ train ride from Seoul. In addition, acting CIO Cho In-sik resigned on July 4, and was replaced by Lee Soo-cheol, also in an acting capacity.
Source: Korean Investors
AI’s view: NPS’s decision to sign the stewardship code is not surprising, but it’s past time. Korea has long suffered from a perception that the government is too closely linked to major conglomerates, which possess intricate cross-shareholding structures that ensure family control, limit governance and raise the risk of corruption. While NPS appears to be limiting its role, its decision to sign up will encourage other asset owners and hopefully push corporate governance up the agenda of Korean companies. Now it needs a chief investment officer, and to stem the flow of departures.
Korea Post Insurance posted a request for proposals for a global tactical asset allocation strategy, as it seeks to increase its overseas investments. The unit of Korea Post is looking for two absolute return managers and two “benchmark-type” managers to conduct the strategy, which will consist of equities, fixed income, alternative investment assets and liquid assets.
It limited fund manager applicants to those with at least $200 billion in assets under management and 10 years of operating history as of June 29, plus a track record of investing at least $20 billion for at least seven years via such strategies. RFPs have to be submitted by August 17, with final selection to take place in September. The Korea Post Insurance Fund had approximately $50.3 billion in assets at the end of 2017.
Executives responsible for the RFP process did not respond to emailed questions from AsianInvestor on the expected size of the mandate.
Source: Korea Post Insurance
Shahril Ridza Ridzuan has been tapped to become the new managing director of sovereign wealth fund Khazanah Nasional, after heading the Employees’ Provident Fund for five years. He takes over from Azman Mokhtar, who resigned on July 31 after heading the SWF for 14 years. Meanwhile, EPF has appointed Tunku Alizakri Alias as its new CEO.
Under Shahril’s leadership, EPF has made great strides in its internal investment processes and governance, receiving several awards in AsianInvestor’s annual Institutional Excellence Awards. It had assets under management of $173.79 billion at the end of 2017, according to AsianInvestor’s AI300 list. Tunku, meanwhile, is now a deputy CEO for strategy at EPF. He will take over on August 20, according to a statement by the pension fund. He has been at EPF since 2014.
AI’s View: Shahril's appointment is a sensible move (most likely) by Prime Minister Mahathir Mohamad, taking a proven leader who has made strides in improving EPF to head the controversy-stricken sovereign wealth fund. It would be some welcome news for Khazanah too, helping forestall a potential lack of direction after Khazanah’s former CEO and its entire board – tainted by their appointment by the disgraced former government – handed in their resignations in late July. It will be interesting to see whether Tunku can maintain the momentum fostered under Shahril.
The Private Pension Administrator Malaysia (PPA) submitted a proposal to Malaysia’s Securities Commission to cut the tax penalty for individuals withdrawing funds from private retirement schemes before they are 55 years old from 8% to 4%. Husaini Hussin, chief executive of PPA, said the cut in the tax rate was designed to make saving in private retirement schemes more appealing. Pre-retirement withdrawals accounted for 31% of total withdrawals last year.
Source: The Sun Daily
AI’s View: Coaxing more Malaysians to save for their retirement is wise. But the reduction in the levy could prompt more individuals to withdraw savings before retirement, and force private retirement schemes to invest more assets into short-term, lower-returning assets. The danger is the schemes get more money but their overall return rates fall, albeit by a small margin.
The head of the Philippine Senate committee on social justice, welfare and rural development proposed raising monthly payments to senior citizens in the country from a Ps500 ($9.42) stipend a month to a living pension of Ps2,000. Senator Leila de Lima filed the bill, noting that the country had more than seven million old-age citizens, of whom more than a million live in poverty.
The Philippines has one of Asia’s youngest populations but its number of elderly people is on the rise, and is projected to reach 14 million by 2030. The country has yet to construct much of a social security apparatus to handle further aging of its population.
FWD Group, the Hong Kong-headquartered life insurer, is looking at listing on the Singapore Exchange with a dual class share structure. The listing would shine more light onto the operations of the life insurance company, which is now privately held. The company greatly expanded its asset base after acquiring Japanese insurer AIG Fuji Life in April 2017. This raised its assets under management to $26.6 billion, according to AsianInvestor’s latest AI300 survey of leading asset owners in Asia Pacific. Dual class share structures are typically used to allow company founders to retain control of the company even after selling a majority stake.
Source: Insurance Journal
The International Labor Organisation estimates Vietnam needs to spend 0.8% of its current GDP to ensure full pension coverage of all senior citizens by 2030. Nuno Cunho, senior social protection specialist at the United Nations agency, estimated only two million of the country’s citizens aged over 65 were receiving payouts based on insurance payments. That leaves 10 million elderly people without pensions. Improving pension coverage is important for Vietnam, which has a swiftly aging population. The UN projects that the number of people over 60 in Vietnam will hit 18 million by 2030.
INTERNATIONAL (EX-ASIA PACIFIC)
The Canada Pension Plan Investment Board (CPPIB) will put money into Australia and New Zealand's property markets, extending A$500 million ($369.62 million) in seed lending to a new fund run by Challenger Investment Partners. The fund is set to invest in middle market real estate loans in both countries. Suyi Kim, head of Asia Pacific for CPPIB, said the region continued to offer the fund “attractive investment opportunities supported by strong fundamentals” and "remains high priority for our growth”.
Source: Deal Street Asia
Italian insurer Generali said last Wednesday (August 1) it was eyeing acquisitions in non-life insurance and asset management as its cash pile grew on the back of disposals and stronger operations.
Speaking to analysts in a call after first-half results, Generali chief executive Philippe Donnet said the group was looking at M&A opportunities in different geographical areas to help diversify its business. Generali said on Wednesday it expected to raise more than €1.5 billion from asset disposals carried out this year and in 2017, above an original target of €1 billion.
Other asset owner news reported by AsianInvestor over the past week:
Article updated to include information on GPIF's quarterly investment returns.