The HK$13.6 billion ($1.7 billion) Hong Kong Housing Society has just restructured how it invests its assets, boosting its commitment to long-term portfolios and revamping its management team to favour specialist mandates.
It got fed up with relying exclusively on balanced fund managers for its medium- and long-term investments, particularly because they tended to underperform in the recent bear markets. So it fired Allianz Dresdner Asset Management, Baring Asset Management, Citigroup Asset Management and JF Asset Management, and has now begun working with a new crop.
The shake-up began late last year when it hired three fixed-income managers to run its medium-term global bond portfolios, says Peter Shieh, the Society's corporate finance manager. The organization hired Black Rock, Pimco and Western Asset Management to run HK$3 billion.
Last month, with the assistance of its consultant, Watson Wyatt, it made its next move, augmenting its long-term (five years-plus) mandates with HK1.6 billion taken from its cash positions, which the Society manages internally. "We had identified a chunk of cash that we wouldn't use for the next five years," explains Shieh. "We decided to take more risk and achieve a higher return."
With a total long-term kitty now boosted to HK$3.6 billion, the Society decided to adopt a purely specialist approach. It hired Schroder Investment Management for a HK$840 million Hong Kong equities mandate and Wellington Management for a HK$800 million global fixed income mandate. "We are only big enough to hire one manager for those two asset classes, but we're also big enough to hire two for global equities," Shieh said.
Here the Society made an interesting move, dividing the HK$1.56 billion global equity mandate evenly among a traditional manager, New Alliance Asset Management, and a manager of managers, SEI, thus becoming the second institutional investor in Asia ex-Japan after the Jockey Club to outsource to a multi-manager.
"We see the advantage of a multi-manager, which picks the right fund managers for us and automatically changes them if there is any change in investment style," says Shieh. "And it gives us access to the best fund managers out there, including names we never heard of before. I understand this strategy is popular in the United States and Europe."
He intends to compare how the multi-manager approach compares with a single-manager mandate.
Next on the agenda is to consider whether to invest a small amount in hedge funds. Shieh likes the idea for risk diversification, but he says educating the trustees in order to make them comfortable with the idea may take time.
The revamp did not affect the Society's custodian, which remains State Street.