While China's leading insurers are earning just mid-single-digit returns in today’s low-yield environment, some smaller and non-liability-driven investment institutions are targeting double that through alternatives.

Among them are Gopher Asset Management, which has $25 billion under management, and TUEF Asset Management, which manages part of the Rmb8.3 billion ($1.17 billion) foundation assets of Beijing-based Tsinghua University.

Although their methods differ, Crystal Li, director and head of single-family offices at Gopher AM, and Hong Tianyang, investment director at TUEF AM, said they both aim for net investment returns of at least 8%.

That compares to the 4% to 5% that the likes of China Life, Ping An and China Pacific Insurance can only manage due to the fact they must invest heavily in fixed income assets to get the regular returns they need to fund the regular payouts they make to policy holders.

Like Gopher AM's family office clients, TUEF AM has no such constraints.

“All the assets we manage come from the Tsinghua University Education Foundation,” Hong said at the sixth Institutional Investment Forum China held in Beijing on Wednesday. “So we don’t have asset-liability constraints."


So what strategies do they follow that might offer broader lessons for other smaller asset owners at a time when yield-starved investors generally are looking to eke out higher returns through alternatives?

Hong Tianyang

“Our preference is domestic over overseas [investments], secondary over primary [markets]. So first, we do asset allocation … to figure out the expected returns of different investments, and anything that returns below 8% is put [aside],” Hong said. “We aim at a higher return. Our mission is to earn money for the university foundation; the more the better. Risk is a consideration but return is more important for us.”

Li, speaking at the same panel discussion, was similarly inclined.

“Our target return for a standard portfolio is 8% to 10% over the long run. Of course, it takes a lot of [effort] to convince the families that this is the right amount of return that you should be looking at when thinking about global investing,” she said.

Despite the general preference for domestic investments, TUEF AM still plans to invest more in foreign markets, especially in alternatives, having started to invest in hedge funds, private equity funds, and real estate about five years ago, Hong said.

Crystal Li

“We have to find reliable and accountable partners because it may possibly add risks for us to invest in alternatives in overseas markets,” he said, and one way to do that is to look at who else they work with in China, whether it's China Investment Corporation or the big insurance companies. 

“That’ll be the starting point,” he said. “And then we’re going to move to the deal structure – Is the deal structure reliable … Can we control the operational risks? Then we’re going to look into the market risks and the return, and whether or not it can fit into our asset allocation.”

Li, who described her portfolios as alternatives-heavy and alpha-seeking, favours direct equity investments representing a minority ownership position in a general partner's underlying management company.

“We’ve done direct lending, so private debt about one year ago. Now we’re looking at kind of more niche strategies, also high-yield generating, which is called GP-stake investing,” she said.


Li thinks investors have to turn to emerging markets to hunt for higher yields.

“If you want growth outside of China, we have to look at emerging markets, especially emerging Asia ... You just need to do a lot of digging, a lot of work. It takes a lot of trips to countries like India, Indonesia, Thailand, these types of markets,” she said. “We’re actively looking.”

“We started looking at the country-focused strategies offered by the big asset managers … [To] truly understand the local emerging markets, you have to talk to the local teams, the people on the ground, not those sitting in Hong Kong or Singapore,” she said.

Hong sees it differently, despite the many emerging market proposals that come his way. 

“We prefer developed countries because the risks are a little bit more under control. We don’t want any negative or nasty surprise ... For emerging markets it looks attractive, but when you get in, you find it’s not the case. So we prefer developed markets, the US, Japan and Europe,” Hong said.

The asset manager invested in the Japanese real estate market in early 2016. The internal rate of return since then has been about 15%, he said.

But having invested in developed markets, especially in the US, Li says her family offices are increasingly moving in the other direction.

“In today’s environment with low returns for the longer run, with very limited beta, especially on a risk-adjusted basis, we don’t want to ignore emerging markets, the power of long-term compounded [returns] in those markets,” she said.