AsianInvestor's seventh annual Institutional Excellence Awards encompassed one of the most challenging periods for investment in living memory.
Standout asset owners during this period have had to be nimble and responsive as conditions sharply deteriorated in late February and March, only to offer investment opportunities in fits and starts from April even as the global economic environment continued to struggle and a US presidential election reached its crescendo.
When choosing the winners of these awards, AsianInvestor and our select panel of expert industry judges took into account the ability of the region's institutional investors to adapt themselves to these unique challenges, in addition to their ability to maintain superior levels of strategic investment planning, maintaining and improving internal resources and personnel and preparing for the obstacles of the future. The winners were the institutions that could best demonstrate how they met these needs.
For our last two proficiency category awards, we describe how Commonwealth Superannuation Corporation's front-footed approach to the Covid-19 pandemic left it particularly well placed to adapt during a hectic and difficult year. Plus we explain why Ben Rudd, the chief investment officer of Prudential Hong Kong, has earned the admiration of many fund managers.
RESPONSE TO COVID-19
Commonwealth Superannuation Corporation (Australia)
Several asset owners can claim to have responded well to the onset of the Covid-19 pandemic, but few were as considered over multiple areas as Commonwealth Superannuation Corporation (CSC).
The superannuation fund had already become concerned about the early rise of the pandemic on China’s central role in manufacturing and the potential impact of disruption to global supply chains in early 2020 and began pulling back on exposure to that sector. That choice that proved wise as the pandemic ramped up in February. The fund believes it avoided well over one-third of the downside in equity markets through the February and March period because of this decision.
It then drew on existing risk management tools and scenario planning and complemented them with specific data signals as the pandemic developed and triggered policy responses. This included monitoring the types of policy response and the likelihood of the efficacy of these steps.
That helped CSC to identify, for example, the likelihood of a jagged market performance as the disease spread, only to be temporarily halted by economic shutdowns, and then expand once more as these were eased. The fund did its best to manage its portfolio in light of such expectations.
Meanwhile, CSC moved its Sydney and Canberra offices to work-from-home arrangements by mid-March. It then established remote communication protocols that ensured communication remained timely and effective. This included the investment team having daily morning calls to ensure all team members were kept on the same page when it came to portfolio activity and plans.
The asset owner had already developed Business Continuity Plans (BCP) prior to the Covid-19 outbreak, and this allowed it to continue operations relatively smoothly, even in the face of travel bans and work-from-home arrangements. However, it also established a crisis management team to closely monitor guidance from government and health advisory bodies and hold regular meetings to respond to new guidelines and laws.
CSC also launched mental health support and resources for staff, while offering seminars and resources to assist them in developing their remote working skills.
The pension fund also had to ensure its portfolio management adapted to account for government policy to let members withdraw up to A$20,000 of funds during 2020 to help cover emergency costs during the course of the pandemic. This was an important development, and CSC did its best to communicate to its customers on how best to minimise the impact on their superannuation balance sheets if they had to take out assets.
Benjamin Rudd, Prudential Hong Kong
The qualities of Ben Rudd as a chief investment officer were evident from the fact that several notable asset managers were willing to convey their support of him to AsianInvestor in third-party testimonials for these awards.
Rudd has been an important figure at Prudential Corporation Asia (the parent company) since joining in February 2017. As the head of investment for Hong Kong he is responsible for the life insurer’s largest single pool of assets in Asia, an amount well over $50 billion that is rapidly expanding.
As such, when he and his team introduce new advances they often end up being copied or modified and distributed to other investment teams in the business.
Since joining, Rudd and his team have embarked on several actions to improve the insurer’s returns. One is taking a total portfolio approach to investing, which effectively amounts to pooling knowledge and analysis about potential risks and returns across asset classes. When done correctly, it can help asset owners spot potential unintended exposures to certain risks or parts of the market that might have unintended consequences, and in Prudential HK’s case has allowed Rudd and his team to hedge or reduce risk via increased derivatives usage.
Rudd also oversaw Prudential HK’s implementation of the Aladdin fund platform and has since worked with the BlackRock team to tailor it for the insurer’s bespoke analysis specifications. Plus, internal technology experts at Prudential are working to collate and automate data collection on the illiquid asset side; the next goal is to automatically integrate both sides together.
These efforts have helped Prudential HK to better conduct scenario analysis and understand how its portfolio performs across different environments. That proved vital during the market swings of March and April, when it was easy to panic.
Rudd’s team had already sought to combine Aladdin and illiquid asset analysis into knowledge packs for Prudential’s investment committees and senior management executives since mid-2019.
That process helped inform Rudd reassure them that it was on top of the potential risks to its portfolio, and not to make knee-jerk reactions.
The approach also allowed Rudd and his team to conduct more environmental, social and governance reporting, as part of a broader Prudential effort to improve its sustainability engagement. That has involved analysing and back-testing decades of ESG-related data and helped the team conduct several sustainable investments.
The improved data analytics have also helped Rudd in another priority for Prudential HK: investing using more bespoke mandates, sometimes across multiple asset classes. To do so Rudd and his team have increasingly engaged with index providers to unique benchmarks for external managers to follow – which can include ESG considerations.
Doing so allows Prudential HK to be more efficient, by for example having mandates that span investment grade and high yield debt or H- and A-shares. These can give managers greater flexibility to take advantage of inefficiencies between the two related asset categories.
All-told, these initiatives are making Prudential a savvier investor with a better grip on risk and stronger internal communications. For that, Rudd deserves credit.
These award write-ups originally appeared in the Winter 2020 edition of AsianInvestor magazine.