The 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.
We begin our explanations of the 2020 award winners with our market awards, where we reveal why New Zealand Super impressed across the Australia and New Zealand markets, and why China Pacific Insurance Company stood out over Greater China*.
New Zealand Super Fund
If one quality embodies New Zealand Super’s DNA, it’s an unceasing obsession with self-analysis and a desire to improve.
The sovereign wealth fund continued to demonstrate these qualities into 2020. Indeed, as the Covid-19 pandemic was beginning, it was engaging in a five-year assessment of its passive reference portfolio, an effective benchmark that NZ Super uses to invest just over half of its portfolio.
It completed the analysis in June, and together with its board the Guardians of New Zealand Superannuation, concluded that the portfolio’s make-up remains fit for purpose. However, this had been no box-ticking exercise, and indeed a lively debate took place around whether it should shift its position on fully hedging offshore investments or all some currency exposure, to potentially benefit from FX changes.
It actively invests the other half, and constantly seeks ways to improve its risk-adjusted returns. That has led it to take bit bets on equity investments and real assets – both offering sizeable levels of risk. NZ Super is well aware of this – indeed chief executive Matt Whineray has discussed this at length and publicly for years.
As it had predicted, this exposure to volatile assets proved to be painful during a period of major turbulence. Over the 12 months to June 30, 2020 the sovereign wealth fund made a positive return of 1.73%, below both the return of its reference portfolio and underneath the 2.7% minimum target it seeks to achieve over New Zealand T-Bills.
Yet it should be noted that NZ Super’s financial year concluded after one of the most turbulent quarters in financial history. And it was astute enough to go largely risk-off on fixed income at the beginning of 2020, which enabled it to take advantage of a blow-out in spreads during the weeks of March and April and helped mitigate the losses it took in its extensive equity positions.
To weather such a difficult period and being disappointed with having made a positive return is a sign of the exacting standards NZ Super sets for itself, as it invests New Zealand’s taxpayer money.
China Pacific Insurance Company
It might not be China’s largest life insurer (in fact it is third biggest), but there is a strong case to be made for China Pacific Insurance Company (CPIC) being its most dynamic over the past two years. The fact it continued to do so during a period in which Covid-19 originated in China and crippled the country for a period of months is particularly noteworthy.
The insurer has, under the leadership of chief investment officer Bin ‘Benjamin’ Deng, been establishing a fully in-house private equity arm to enhance its ability to active investment capabilities. It has been actively looking to plug risk management holes too, creating an online credit rating system that formalises its internal credit rating process. This is an important step at a time China’s bond market is growing but also seeing increased defaults due to slower economic growth.
CPIC has sought to vary its lines of investing too, actively looking at bank perpetual bonds, securitisations and investing in Hong Kong stocks via the Hong Kong-Shanghai/Shenzhen stock connect programmes. Increasingly it has sought to research and invest into structured financial products too, such as structured funds and convertible bonds. On the real asset side, it has been a major investor in infrastructure and real estate debt, amassing a position well over Rmb100 billion ($15.29 billion), while its private equity and real estate investments are also in the tens of billions of renminbi.
CPIC hasn’t missed out on advancing itself on the environmental, social and governance (ESG) front either. It has been a major investor in ESG projects via debt investment and private equity, via funds such as the China Poverty Alleviation Fund and the Shanghai Environment Projection Fund. It has also helped support projects such as planting a new forest in the Gobi area in Qinghai province. The insurer has also strengthened sustainable practices in the quantitative and qualitative factors it uses to assess external managers.
Perhaps most impressively, CPIC was generous beyond itself amid the difficulties of the Covid-19 period.
It supplied insurance for medical personnel working in Hubei, Shanghai, Guangdong and other major urban areas, and also donated Rmb10 million to the East Lake High-Tech Zone in Wuhan, the epicentre of the Covid-19 outbreak, to help support local technological innovators and small and medium-sized enterprises that were struggling.
* AsianInvestor recategorised the 2020 institutional excellence awards to combine China, Hong Kong and Taiwan into one Greater China market category.