The Hong Kong Housing Society, which has a HK$32 billion ($4 billion) investment portfolio, wants to increase the share of alternatives in its investment portfolio.
That's according to its head of treasury, who spoke at an event on Monday organised by the Hong Kong Investment Funds Association on Monday and also to AsianInvestor on the sidelines.
“We are a firm believer in alternatives, especially given what has happened to [public] markets,” Alan Liu told the delegates present.
Hedge fund strategies, in particular, appear to be gaining favour among investors, he said, noting how the HKHS’s own hedge fund investing programme has doubled in the last seven years.
Separately, Liu told AsianInvestor that the housing institution has about 5% of its investments in alternatives.
“At the moment, all I can say is that we want more [of alternatives],” he said while declining to provide an alternatives allocation target.
In that respect, Liu echoes the views of other asset owners in the region -- including Korea's Public Officials Benefit Association, Australia's Mercer Super and HSBC Insurance's Hong Kong unit -- which have also expressed a keen interest in alternative investments to help improve their risk-adjusted returns and asset-liability management.
Liu said introducing any new alts investment strategies would take time as these need to win the approval HKHS’s relatively conservative investment committee.
“But in terms of [market] prospects and outlook, and given our [focus on an] absolute returns strategy, we would like to have more [of an allocation]," he said.
While he declined to provide an absolute returns target for the institution, he told AsianInvestor that the returns target was not static and subject to change depending on factors such as HKHS’s capital expenditure and business conditions and expectations.
As part of its pursuit of absolute returns in the financial year ended March 2018, HKHS, an independent, not-for-profit organisation that aims to provide affordable housing for the people of Hong Kong, handed a HK$500 million ($64 million) mandate to an unconstrained bond fund manager. It is currently deciding whether to announce any more new mandates, Liu told AsianInvestor.
FUND MANAGER SELECTION
At the event, Liu shed some light on how HKHS goes about selecting its fund managers.
He acknowledged that the process can be slow since introducing new ideas to the investment team at HKHS can sometimes be challenging.
“The first reaction is ‘oh, this is going to be more work [for us]’,” Liu said, light-heartedly.
Institution tends to be bogged down by inertia and change can be a big deal for them, he added. "I need to write a paper [on the idea], it needs to go to the investment committee, after which board approval is required. There will also be a beauty parade. It’s a long process.”
Making it harder is the fact the investment committee meets only twice a year.
Nevertheless, Liu emphasised that he remains keen to meet existing and potential managers to keep abreast of market developments and investment ideas. “Our investments are changing, because our liabilities are changing, so we need different products at different times,” he said.
In the last full year to March-end, the investment committee reviewed three of its fund managers and retired two of them, HKHS's annual report shows.
At the last count, its total investments were split into three portfolios: a fairly diversified, equity-heavy long-term portfolio (used to fund the redevelopment of rental estates); a medium-term and relatively low risk portfolio biased towards bonds (to fund the development of subsidised sale flats projects); and a short-term portfolio (to preserve capital and ensure liquidity).
Liu said he was cautiously positive about the market outlook for 2019, viewing the volatility caused by China-US trade tensions as a process investors simply needed to get through: “Once they adjust to these ongoing tensions, they will move past [them].”
“I am more relaxed about the outlook for next year,” he told AsianInvestor.