Hong Kong's Hospital Authority Provident Fund Scheme and Japan's Pension Fund Association for Local Government Officials (Chikyoren) received AsianInvestor's Institutional Excellence Awards for their respective domestic markets. Here we outline why they were chosen.
AsianInvestor has already announced the full list of winners by country, category and proficiency, and published details of how we came to our final decisions. Scroll to the end of this article for links to the award write-ups we have already published.
All the details in full, along with photos of the winners, will appear in an extended feature in the December issue of AsianInvestor magazine.
Hospital Authority Provident Fund Scheme
Hong Kong’s Hospital Authority Provident Fund Scheme (HAPFS) stands out for its corporate governance, investment capabilities and innovation.
The fund’s investment committee assists the trustee in deciding on investment strategies and hiring external managers. It outsources its asset management but retains professional investment teams internally to monitor the investments made on its behalf.
The strength of its approach was attested to by its six-member choice funds, which all returned positively over the five years ending September 2016. For example, the global equity fund returned 10.6% per annum and the growth fund returned 9%.
HAPFS is an innovator. It was among the first to hand out hand out a dim-sum bond mandate, and it stuck with a currency-overlay programme when peers were forsaking such strategies, which has done well amid volatile euro and yen movements. And in May 2016 the scheme introduced a $200 million low-volatility smart beta mandate.
It is also becoming active in environmental, social and governance strategies, having banned its asset managers from investing in tobacco and other ‘bad’ companies, and discussing such topics with institutions such as the United Nations Principles for Responsible Investment.
The organisation is not afraid to seek external help to spur its development. It regularly engages external consultants to review its risk profile. It last did so in 2015, and the results led it to implement an enterprise risk management framework.
For all these reasons HAPFS has underscored that it is one of the more enlightened, forward-thinking and well run institutional investors in Hong Kong.
In recognition of his contribution, Heman Wong was presented with the lifetime achievement honour as part of the Institutional Excellence Awards. He stepped down from his role as executive director last month after overseeing the investment team for nine years.
Pension Fund Association for Local Government Officials (Chikyoren)
As Japan populace greys and interest rates remain negative, the Pension Fund Association for Local Government Officials (Chikyoren) is leading the pension fund hunt for yield.
The fund’s AUM rose 25% over five years to ¥20.58 trillion ($179 billion) at the end of 2015. To boost returns, it is heavily revamping its portfolio. Between the end of 2011 and 2015 it cut its domestic bond allocation from 63% to 47.6%, raised its stock exposure from 25% to 35% and increased foreign bonds from 9.8% to 11.9%.
The fund is hiring new institutions to manage the shift, particularly in alternatives. In June Chikyoren hired Nomura Asset Management to begin overhauling its local real estate investments, while in July it appointed UBS Asset Management for a foreign property mandate and JP Morgan Asset Management on an overseas infrastructure mandate.
Chikyoren doesn’t reveal its alternatives allocations, but local media speculate it invests around 5% of its AUM in the asset class, with around 3% in property.
A local pension fund expert said Chikyoren was more transparent than most peers, detailing its organisational structure and corporate governance commitments. In July the fund published details on its website about the requirements expected of asset managers wishing to pre-register to offer it investment services.
The investment shift is paying off. For the final quarter of 2015 (its last published reporting period), Chikyoren reported a 3.12% modified total return for its Employees’ Pension Insurance Benefit Adjustment Fund (which had around ¥10 trillion in AUM at end-2015) and 3.06% for its Transitional Long-Term Benefits Adjustment Fund.
Like its larger peer, the country's Government Pension Investment Fund, Chikyoren has recognised the areas where it was falling short and moved decisively to address them.
Write-ups already published (and what they were awarded for):