Private credit might be less attractive than it was last year as investors rush into the market, but there are sweet spots to be found.
The fund combines both top-down and bottom-up strategies when investing in China-related securities listed in Hong Kong, Singapore and the US markets. Subject to market conditions, its equity weighting has a range of 60% to 95%, with the remainder invested in US Treasuries, Hong Kong corporate fixed-income instruments and global currencies.
Gondard says he is optimistic that there will be less monetary tightening in China in the second half of the year. He expects global and local inflation to remain key concerns in relation to the quality of earnings of companies in QDII portfolios. But he believes the central bankÆs monetary policies will be enough to manage potential problems.
The Rmb462 million generated by Fortune SGAMÆs QDII launch is a far cry from results recorded for similar fund launches last year. China International, a fund JV of JPMorganÆs in Shanghai, generated an inflow of close to Rmb100 billion ($13.31 billion) in the space of just one morning in October.
Peter Alexander, a principal at Z-Ben Advisors, concludes weak investor appetite and a rising tide of nationalistic sentiment in China could be to blame for the poor showing. Gondard dismisses concerns of anti-French sentiment among investors, saying instead that the poor reputation of QDII funds launched between September and October 2007 affected Fortune SGAMÆs results.
ôI would not call that nationalistic but idealistic,ö Gondard says. ôPeople are expecting a lot from the Olympics. But the Chinese Olympics is mainly a domestic event. We donÆt really expect anything to change investment-wise on flows going overseas, or flows coming from overseas because of this."
He adds that the: "QDII product is definitely more of a growth process than a value process. It does not mean that we are not looking at the prices of the asset that we buy. It means that we are looking both ways û playing the China growth on top-down, and we are playing fast growing and upcoming names from the bottom-up perspective of the process.ö
Unlike previous QDII funds, Fortune SGAM will rely less on sector themes or IPO bidding.
ôThe situation is completely different to what is happening in the mainland Chinese market,ö says Gondard. He expects the pipeline for China-related IPO in Hong Kong and Singapore to likely stay weak until next year and that's why the fundÆs IPO allocation will be limited and selective.
ôWe have been trading a little bit today. We are going to continue trading in the next few weeks. We are going to take our time in investing the fund. We are not in a hurry, unlike our competitors in October or November. We really donÆt have any upward pressure from the market. ItÆs not pushing us to invest,ö he says.
ôItÆs too early to assess (the cash holdings versus invested assets) within one or two months. ItÆs going to be the macro-economic data that we get, and up to the market momentum, and technical indicators in the market at the time. We are taking our time bargain hunting,ö he adds.
Bank of New York has been appointed as the fundÆs overseas custodian, while China Construction Bank is the local custodian.
Gondard was previously a fund manager for SGÆs global balanced portfolio in New York. Lei was a senior portfolio analyst with ACES Power Marketing and a senior investment analyst at Merrill Lynch.
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China and India are more obvious choices for AustralianSuper to consider in Asia Pacific, but the super fund currently lacks the expertise and prefers to stick to the US and Europe.
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