MAS names sustainability head; Malaysia’s EPF appoints COO and CFO; GIC PE head for SEA leaves; State Super hires new exec; Hesta appoints chief growth officer, chief Debby Blakey appointed to corporate governance board; ex-BlackRock exec joins IQ-EQ in Singapore; HSBC AM builds direct real estate team; ex-Vanguard head of distribution joins LGIM; Sanne names Singapore head; and more
By the end of 2010, the three funds will manage an asset pool of $729 billion, and over the next three years they will test the water with global asset managers. After that, the pace of outsourcing will pick up even further.
CIC will contribute the most to the growth in assets, growing from $200 billion currently to $625 billion by 2010. The Z-Ben report predicts that over 70% of these assets will be assigned to external managers by that time.
Michael McCormack, an analyst at the Shanghai-based advisory company which published the sovereign wealth fund report, has come up with his projections by studying the structure of these funds and the growth in sterilised foreign reserves held by the central bank. He has also analysed the magnitude of the macroeconomic problem, the capacity of the fundsÆ internal investment platforms and sizes of past mandates.
ôIt is crystal clear. There is no possibility the CIC is built to manage $50 billion or $100 billion,ö McCormack says. ôIt essentially is not going to solve or even keep pace with the needs that the funds were created to solve. Were China to put another $200 billion in CIC next year, that wouldnÆt keep up with the growth in sterilised forex reserves."
According to data from the State Administration of Foreign Exchanges (Safe), ChinaÆs foreign reserves increased to $1.68 trillion in the latest quarter. As more of these assets are transferred to the CIC to be managed, it is certain that the CIC will face capacity issues, as it is essentially a structure borne out of the NSSF and Central Huijin û its predecessor to the role of macroeconomic management in China, says McCormack.
NSSFÆs total assets stand at just $71 billion today, meanwhile. Even if its assets are projected to grow to $104 billion by end of 2010, it will only be half of CIC's $200 billion in assets. In order to cope with these assets, the CIC recently announced its plan to outsource a number of mandates to external third-party managers. Close to $35 billion is expected to be assigned to 14 equity, six fixed income, and five to 10 alternative investment managers.
Z-Ben expects the size of the individual equity mandates to range between $750 million and $1.5 billion, and the fixed income mandates to be around $1 billion each. The mandates are expected to show a strong bias towards emerging Asia.
ôIf you think about the fact that they donÆt have liability-matching issues, they are in better position to see the returns be long and lumpy than anyone else in the game,ö McCormack says. ôThey are taking full advantage of that by going in and up-weighing emerging markets like Asia ex-Japan and emerging marketsö
CIC is hoping to transfer the management responsibilities of these assets to capable hands. Only the very global, multi-asset managers should expect to be selected. From CICÆs perspective, it is issuing these mandates in relatively small doses in order to test out and study these processes in detail.
Over the course of 2009, McCormack anticipates that CIC will gradually allocate up to $180 billion to foreign managers, with a shift from active strategies to passive management. By 2010, as CICÆs assets grow to an expected $625 billion, 70% of those assets are expected to be in the hands of foreign asset management houses.
CIC will no doubt highlight the size of its asset base and its long-term objectives when it negotiates the mandates.
ôCIC fully appreciates the scarcity of investors in the market place willing to come in at that size and be that patient for their returns,ö McCormack says. He believes it is unlikely the CIC will adopt a ôcookie cutterö approach to fees.
McCormack also speculates that the agreement made between fund management firm JC FlowerÆs and CIC has been set forward as an example for future alternative investment deals; CIC is also introducing a æpartnershipÆ structure with managers to encourage maximum returns.
ôThe organising manager and fellow clients of JC Flowers are putting up substantially more money of their own than otherwise might be the case. ItÆs atypical to see alternative managers putting so much of their skin in the game,ö he say.
According to Jesse Wang, chief risk officer at CIC, over 200 submissions for its equity mandates, and another 100 for its fixed income mandates, were received in the current round of bidding.
CIC is understood to have gone through the interview stage with a short-listed group of managers and is now in the negotiation process with the selected candidates. The results of the equity mandates are expected to be announced in two to three weeksÆ time, while the fixed income mandates will be revealed by mid-May this year.
The current round of mandates includes:
Global equity: active mandate, benchmarked against the MSCI All World Index, US dollar denomined, reinvestment of dividends, target return at above 300bp
Active EAFE: US dollar denominated, reinvestable dividends, target of 200bp above MSCI EAFE index
Emerging market equity: active strategy, MSCI Emerging Markets Index, US dollar denominated, reinvestable dividends, target of 300bp above benchmark
Asia ex-Japan equity: applicant to supply suitable benchmark and target rate of return, non-pure Asean selection, active mandate
Global fixed income: US dollar denominated, synthetic benchmark, GDP-weighted index composite of Lehman BrothersÆ US, Euro-zone, Japan and JPMorgan UK Gilt indices, return of benchmark plus 150bp
Active emerging market debt: JPMorgan Embi Global Index, target of benchmark plus 200bp
The AU$85 billion ($61.6 billion) Australian super fund has some exposure to indebted property developer Evergrande. Meanwhile, China’s construction finance is part of its core strategy in real estate.
Investors are seeing the risks, but also the opportunities of the logistics sector. Warehousing their fears for the moment, they can see it's a good conduit to high-growth assets.
Insto roundup: GPIF staff say J-Reits more attractive than traditional assets; Hong Kong's strict Spac criteria
EISS Super hit by another scandal; China's CSRC launches consultation on disclosure requirements for new BSE securities; Hong Kong issues consultation paper on Spacs; New World Development partners with China Taiping to focus on Greater Bay Area projects; GPIF employees say Japanese Reits have grown more attractive; Taiwan's BLF invites bid for $1.7 billion mandate; and more
SGX’s new framework for Spacs will likely provide investors with a much-needed channel for direct deals, but the verdict is still out on whether it will bring liquidity to the bourse.