The Dutch pension asset manager's Asia Pacific head of real estate says his team has just had one of its busiest years ever and that 2021 is looking similarly promising.
Anthony Chan, senior investment consultant at Watson Wyatt, calculates Hong KongÆs defined-benefit schemesÆ investment returns have lost 13% gross of fees so far this year, to the end of August. Throw in an abysmal September, plus fees, and the industry has lost a lot of money. These schemes account for HK$243 billion ($31 billion) of assets as of June, according to the Mandatory Provident Fund Schemes Authority.
ThatÆs partly because most Hong Kong funds remain wedded to their traditional asset allocations of majority global equities (65-70%), with the rest in bonds and cash. Larger funds with better governance are not suffering as much, because they began to de-risk their portfolios early. If the bigger, more sophisticated players have protected their funding surpluses, then many DB schemes have experienced investment losses far worse than 13%.
The three funds contacted by AsianInvestor are among this larger set. They all say their means of de-risking has involved reducing equities in favour of alternative investments.
One person willing to go on the record is Jacob Tsang, the treasurer of the Hong Kong Jockey Club, a pioneer among Hong Kong institutions when it comes to alternatives (and an endowment, although one also with a DB plan). He says overall the Jockey Club is not making significant changes to its asset allocation but is looking to make modest allocations to niche areas such as secondary private equity and distressed funds.
Other leading institutions say, however, that they have been advised by their consultants not to make any moves. ôItÆs very difficult to take advantage of cheap assets when every day you hear of another financial institution collapsing.ö
Another complains of constant paperwork following each headline-grabbing collapse or bailout, as trustees demand to know what kind of exposures the pension fund has. Time that could go to thinking about opportunities is being spent instead on going through every exposure and counterparty risk, over and over.
ôWe do have clients in Europe actively seeking to take advantage of market opportunities,ö says Anthony Chan, ôbut those in Asia have adopted a more defensive posture. TheyÆre mostly just checking their exposures.ö On the plus side, he says no one is panicking or doing anything rash, either.
So far, no one has answers to how this will shape Hong KongÆs pensions landscape. There are going to be many smaller funds that will now face immediate insolvency issues, although the big ones should still have funding surpluses left.
This crisis is also having a negative impact on Mandatory Provident Fund schemes, the territoryÆs corporate defined-contribution regime responsible for HK$249 billion ($32 billion), as of June. The risk is being shouldered by individuals, not the companies. Despite seven years of repeated attempts by companies and fund managers to educate members, people have by and large ignored seminars and so on.
The big fear among HR managers is that the wrong lessons are being learned. One head of HR at a leading Hong Kong blue-chip, which also has a big DB plan, says MPF is meant to be a long-term programme. Younger people in particular have been actively encouraged to not put their money into capital preservation funds or guaranteed funds, because inflation will erode those low-return investments.
But right now, itÆs the most conservative MPF programmes that are suffering the least, whereas the higher risk, equity-oriented products are delivering severe losses. Over time, dollar-cost averaging and compound interest will see investors through û but right now, no one can see the end of the tunnel. Companies fear they will face harsh criticisms over MPF, and that many investors will never leave CPF-type allocations. This has the potential to undermine the entire point of MPF for many of the 2.2 million Hong Kongers with MPF accounts, for whom the system is their only long-term investment vehicle for retirement.
Sunsuper and QSuper appoints CIO for combined entity; State Street appoints heads of HK and Taiwan; Nothern Trust rebuilds Apac team; Manulife IM names emerging markets fixed income CIO; RBC Wealth Management hires four into HK; Lombard Odier hires two senior equity managers; Allianz Global Investors appoints Asia hand as equity CIO; and more.
Investors from China and the US are expected to continue buying assets in each other’s markets despite the blacklist of Chinese firms with military and surveillance ties.
Stronger government actions are needed to meet the Paris Agreement goal of limiting global temperature rise to 1.5 degrees, investors such as Hesta and CDPQ signed in a statement.
AsianInvestor explains why we chose the winners of the second half of our 2021 fund manager winners, by major local markets.