While Asia’s largest asset owners are evidently increasing their investment into alternative asset classes, there appears to be a growing dispersion as to which ones to pick.
This was one key theme to emerge from AsianInvestor’s annual survey of the largest 300 institutional investors across Asia Pacific, based on our AI300 ranking published in the July magazine and available on our microsite, www.asianinvestor.net/ai300.
In our AI300 survey*, sponsored by Goldman Sachs Asset Management, respondents voted for infrastructure and real estate as the most desirable alternative asset classes at 22% each, which is consistent with previous AI300 surveys (see Figure 1).
However, the lead of these two segments has fallen, with infrastructure down from 25% last year and real estate from 24%. At the same time private equity, structured finance, hedge funds and currency/macro all increased their share year-on-year.
Private equity received 14% of votes this year, versus 9.3% in last year’s survey. Similarly structured finance jumped to 13% this year, from 10.3% in 2013; hedge funds increased to 12% (11.3% previously) and currency/macro to 6% (3%). Commodities noticeably remain out of favour at 2%.
When asked which private strategies they anticipated increasing exposure to over the next 12 months, again the top answer was real assets at 35%. But credit (mezzanine and direct lending) received a strong 25% of votes, secondaries had 13% and growth/venture capital also made double figures at 10%.
“The direction people are going in is very personal to their particular organisation and belief as to where returns will come from, which is why you see everything from private equity to mezzanine to macro funds. It’s all over the map,” said Sheila Patel, chief executive of international at GSAM.
She noted that client interest in alternatives was diversified by product type and by geography, including Australia, Taiwan, Korea, Hong Kong, Singapore and China. “It has been different in each place,” Patel said.
This broad-based interest was also reflected in answer to our question on which hedge fund strategies asset owners would focus on in the next 12 months.
The most popular answers were equity long/short and relative value at 23% each, but global diversified received a healthy 19% of votes and global macro 14%. Only tactical trading was weakly supported at 6%. (See Figure 2.)
“There is a real diversity of views, but consistency in that where they are looking to get their exposures is very spread out. That is the theme that’s bubbling through,” said Karl Wianecki, chief operating officer for GSAM in the region.
Asked how they planned to grow their overseas alternatives portfolio, a dominant 39% of respondents said invest in funds. But noticeably co-invest/invest directly received 24% of votes. Use of fund providers (13%) and use advisers/retain discretion (11%) also resonated among respondents.
We didn’t ask this question last year so we can’t make year-on-year comparisons. Still, Wianecki was of the view that use of advisers would have been far smaller three to five years ago.
“[AI300 respondents] could be using [advisers] as an extension of their own team, looking to augment their own capabilities by leveraging what others can bring to them,” he suggested.
In the AI300 survey*, sponsored by Goldman Sachs Asset Management, * AsianInvestor’s survey received 100 responses from 93 institutions across 13 countries. This included central banks, sovereign wealth funds, pension funds, insurance firms, commercial banks, official institutions and an endowment.
Insurance firms were most well represented (38), followed by commercial banks (27) and pension funds (20). It means more than half of our responses came from liability-driven investors.
The results of our survey are published in full in the October magazine edition of AsianInvestor, which has just been published and is available online.