A version of this article was first published on FinanceAsia.
Asset owners are dealing with unprecedented times – a prolonged low interest rate environment, Covid-19, geopolitical tensions, societal changes, and fast-paced technological disruption.
In response, many are ramping up their allocation to alternatives in their search for alpha, such as through investment in private equity. It is in this sense, that BIA is ahead of its time: the 38-year-old sovereign wealth fund, charged with investing the Southeast Asian country’s oil revenues, has a long history of investing in alternative assets.
“We’ve been private equity investors for over 20 years now,” Noorsurainah (Su) Tengah, head of alternatives, told FinanceAsia in an exclusive interview.
Though the fund does not publicly disclose details of its assets under management (AUM) or portfolio composition, its alternatives portfolio includes private equity, absolute return, commodities and multi-asset strategies, Tengah said.
Having a diversified portfolio – both at asset and regional level – as well as a disciplined underwriting process, has allowed BIA to weather the impact of the ongoing Covid-19 pandemic on investment returns: “I would say performance has been reasonably robust,” she said.
From January 17, all private assets are set to fall within Tengah’s supervision as she takes on the additional role of leading the fund’s real estate investment mandate, a position that she is well placed to hold with her 15-year tenure at the firm.
Alpha in alternatives
Tengah explained that, at a time when inflation-adjusted bond yields and negative and valuations are at an all-time high, alternatives can help institutional investors bridge the gap to expected returns.
But in the case of BIA, she said that the fund’s turn towards alternatives was not a direct response to the Covid-19 pandemic, stressing instead that its allocation to the asset class came as rather a natural evolution of the firm’s private equity programme.
While private investments often require more capital and longer investment horizons compared with more liquid public markets, there are ways that asset owners can quickly ramp up private equity allocations – notably, through secondaries or direct investments.
Examples of BIA’s recent direct investments include its participation in Chinese driverless tech company Pony.ai’s $367 million Series C round in February 2021, and its $15 million investment in Indian meat and seafood brand Licious in June 2021.
Strategic support over the long term
BIA has actively employed a hedge fund strategy since 2012, selecting a roster of “high conviction” managers to work with across the long term. “We are deliberate about how we approach portfolio construction and the types of alpha that we want to have,” Tengah said.
She added, “It's not easy to get access to the best hedge fund managers out there due to capacity constraints. We're quite lucky that we started early and have had these relationships for a long time.”
The agency’s hedge fund strategies are 100% externally managed, while the firm invests in private equity through a combination of funds, direct investments and co-investments.
But that does not mean the fund is resting on its laurels: “There's a lot of hard and difficult work ahead of us in terms of thinking how we can put together a portfolio that helps us meet our objectives, at a time when return expectations are low in the midst of an environment that is increasingly complex.”
Delivering through diversification
In response to low interest rates and an era of accommodative monetary and fiscal policy, BIA launched its multi-asset investment vertical two years ago – its first new vertical in 20 years. The multi-asset strategy seeks to put together an optimal beta portfolio of passive long holdings, Tengah explained.
BIA had incubated the strategy for a year and seeded it for three years prior to its launch.
“The fact that we've launched a new investment vertical after a very long time is testament to the need to evolve with the times, and these are unprecedented times,” she said.
BIA has also been active in reconstructing its portfolio and ensuring that is has focused thematics that play out over the long term, such as sustainable investments, the rise of the Asian consumer and tech-enabled disruption.