The past two years have amply demonstrated why the world’s most successful asset owners combine process discipline with hard work, talented personnel and a willingness to embrace new opportunities.
Some of this year’s winners offer years’ worth of global-standard professionalism, while others have boldly charted new courses in these tricky conditions.
Picking the winners was no easy task. Institutions were encouraged to self-nominate, but we also sought out the advice of some of the most talented and experienced advisers and consultants in the market and conducted extensive internal research, before short-listing strong candidates. Even then, many categories were highly competitive.
These awards are a testament to the dedication with which the region’s best institutions take the management of their assets. As the world enters a new period of political uncertainty and continued lacklustre growth, it is relieving to know there are so many professional bodies taking care of the region’s assets.
We have already featured write-ups for our reserves manager of the year (Hong Kong Monetary Authority) and individual contribution to institutional investment (Huang Chao-Hsi of Taiwan's Bureau of Labor Funds). AsianInvestor announced the 14 other winners by country, category and proficiency last month.
Sovereign wealth fund:
AsianInvestor’s award for the best sovereign fund reflects the maturing of Australia’s Future Fund over the past decade.
Although the A$123 billion ($92.5 billion) fund will begin drawing down in 2020, it is expected to continue growing beyond its payout liabilities until at least 2040. For this reason, the investment team aims to invest and manage its capital over the long term.
The fund’s highly capable staff regularly move between investment teams, to promote new insights and cross-team collaboration and development. This helps ensure the investment committee can be nimble in making decisions.
Its quality can be seen in the fund’s performance. Over its first 10 years it has posted an annualised return of 7.7% against the benchmark return of 4.5% above consumer price index inflation, which works out at an annualised 6.9%.
Chief investment officer Raphael Arndt talks about the fact more capital is competing with Future Fund and other long-term investors. Rather than deploy capital unwisely, the fund raised its cash position to above 20% for most of 2016.
However, the fund boasted good returns courtesy of its focus on private market opportunities, particularly co-investing. Its private equity portfolio is a good example (circa $12 billion as at June 30); around 25% of the programme is in co-investments, and this continues to grow.
The Future Fund has also taken advantage of private lending opportunities around the world. It grew this portfolio from 10% of AUM in its last reporting year to 12% in this one (ending June 30).
Noted: We will publish an in-depth interview with Arndt in the coming days, with more detail on its approach to external managers and co-investment.
A long-established Asian business with $140 billion under management, AIA has focused on diversifying its asset allocation in 2016, under new chief investment officer Mark Konyn.
In total, 85% of the company’s assets are in interest-bearing securities. To generate better returns in a low-yielding environment, it has invested more into illiquid assets, including private debt and loans, private equity and infrastructure debt. AIA now has 14% of fixed income assets invested in infrastructure and real estate investment trusts, while it aims for private equity investments to generate 300 to 400 basis points’ premium over listed equities.
During 2016 AIA enhanced its credit performance by moving into corporate bonds outside Asia Pacific for the first time. It also expanded its Hong Kong- and Shanghai-based credit analyst teams, and developed in-house capabilities in structured fixed income, including analysis of collateralised loan obligations.
AIA has also carefully managed its yield curve positions and diversified exposures, notably into US dollar corporate bonds hedged against Asian currencies. Additionally, it has begun building market-pricing methodologies into its models, something it admits it had not been as rigorous in doing in the past.
Its efforts are bearing fruit. Over the last five years, nearly two-thirds of AIA’s in-house managed equity life funds contributed alpha, while around 80% of its managed funds operating in the three largest investment-linked product markets ranked in the top or second quartile for performance over the last three years.
When we asked industry experts which insurance companies we should be considering this year for this award, AIA’s name regularly cropped up for reasons such as its impressive investment capabilities and strong governance. It is clear why.