The Dutch pension asset manager's Asia Pacific head of real estate says his team has just had one of its busiest years ever and that 2021 is looking similarly promising.
As more pension funds and other investors raise their exposure, absolute returns will become more important than traditional index-linked benchmarks. BoNY also predicts that institutions will emphasise the separation of beta and alpha, versus cling to long-only portfolio management.
Investors in mature markets are expected to lead the charge in absolute numbers. But Europe and the Middle East will see the sharpest rise in demand. Investors in Asia Pacific will increase their hedge-fund exposures more quickly than in North America.
ôHedge funds are no longer a blip on the radar of global institutional investors,ö says Marina Lewin, the bankÆs managing director for alternative investment services in New York. ôInvestors are now increasingly looking for an unconstrained style of investing and with this mind, hedge funds are clearly here to stay and assets held by institutional investors will triple in the next three years.ö
Of the 101 institutional respondents, Asian investors were represented by firms such Sun Hung Kai Fund Management and The Hong Kong Jockey Club. BoNY says results were consistent worldwide.
ôThe survey showed that there are a lot of consistencies on how institutional investors are treating hedge funds globally,ö says Lewin. ôWhen comparing Asian institutional investors to their global peers, it was almost surprising how everyone was on a similar footing in levels of sophistication, opinions on fees and hedge fund strategy going forward.ö
As of 31 December, 2005 institutional investors globally held approximately $360 billion in hedge fund assets, which is around 2% of total institutional assets around the world. This number represents roughly 30% of all hedge fund assets globally, which climbed 20% in a mere six years.
Of the $360 billion asset pool, US institutional investors held 41%, while Europe including the UK accounted for around 19%. JapanÆs institutional investors have roughly one quarter of the total hedge fund assets held by institutional investors. Australian institutional investors accounted for 2%, although this is growing due to the influx of superannuation funds putting their feet into the alternative-asset space.
According to BoNY, investment into this space by institutions in Asia ex-Japan is still small but will soon accelerate.
ôOf the institutional investors that we spoke to as part of our survey, many indicated that they now consider hedge funds as a necessary asset class in order to meet their long-term return expectations,ö says Lewin. ôFor institutional investors everywhere, the higher return per unit of risk that some hedge funds offer will increasingly help investors with where they need get to.ö
In the survey, BoNY assumed an expected return for a traditional portfolio of 60% equity and 40% fixed income would be 5.70%. But institutions have long-term assumptions that returns will be 8.47%. This gap between expectations and reality can be met by higher allocations to hedge funds. Although the survey included government funds and endowments, the acute need rests with corporate pension schemes. These often face major challenges meeting their liabilities as more workers grow old.
And investors have expressed satisfaction that a portfolio of hedge funds can usually deliver 8-10% per annum. Over 70% of respondents in the survey affirmed their hedge-fund investments performed within 1% of their expectations, which is more consistent than traditional asset classes.
ôSimilar to Europe, we expect Asian institutional investors to become much more prominent in hedge funds over the next three years as this asset class becomes more mainstream,ö say Lewin. ôBecause of this, AsiaÆs institutional investors will see their exposure to hedge fund assets grow through a combination of both funds of hedge funds and direct hedge-fund allocations.ö
AsianInvestor describes why we chose the top funds across a series of key asset classes.
The RM82.64 billion ($20.6 billion) Malaysian Hajj fund, which recently completed a restructure, is looking to diversify globally but remains cautious of risky assets.
Mega players Nippon Life and Dai-ichi Life are looking for opportunities in higher-yield single-A US corporate bonds, which offer more appealing yields than stagnant domestic offerings.
The “lower for longer” monetary policy and stimulus packages, coupled with the rolling out of vaccine programmes favorably support real estate investing in the region, with offices and data centres presenting forward-looking opportunities.