Insto roundup: Aussie supers plan $20b infra splash; NPS to add equities, cut bonds

GLOBAL

Institutional investors are concerned about restraints pushing them into relatively short-term, liquid strategies, but still plan to increase their private asset exposure, found a global survey published last week by Natixis Investment Managers. It was conducted in October and November, prior to the Covid-19 outbreak.

Some six in 10 (57%) of respondents said solvency and liquidity requirements created a bias for short-time horizons and highly liquid assets. And 48% said their ability to execute long-term strategies was inhibited by the market’s focus on short-term performance expectations. Nearly a third (31%) reported internal pressure from their boards’ focus on quarterly results.

However, nearly seven in ten (68%) asset owners said private assets would play a more prominent role in their investment strategies going forward. And 71% said private asset returns made them worth the liquidity risk.

Source: Natixis Investment Managers

AUSTRALIA

Superannuation funds can play a major role in the country's economic recovery from the Covid-19 pandemic by investing in infrastructure and raising capital for Australian companies, but policy certainty is needed, according to Retail Employees Superannuation Trust (Rest). 

The industry super fund's chief executive, Vicki Doyle, said super funds needed to have stable policy settings as any uncertainty would constrain the ability to invest for the long-term. 

"It's important that a short-term approach to the current crisis does not create a longer-term crisis for Australia's retirement savings," she added. "If members' super is regularly called upon to provide short-term fiscal support to the economy, it changes the way we invest on behalf of our members. We would need to consider shorter-term investment horizons and different asset allocations."

Source: Money Management 

Australia's Industry super funds have earmarked close to A$30 billion ($20 billion) for infrastructure projects as part of a plan to drive the nation's economic recovery and grow members' savings.

The ambitious plan will see a total of 26 funds pump a total of A$28 billion into "solar farms at Darwin airport, other airport terminal expansions, rail upgrades" and several other projects.

Source: The New Daily

First State Super's bet on financial adviser StatePlus has resulted in members being kept in the dark on a massive writedown and a A$725 million ($474.43 million) related-party promissory note.

First State Super lost A$400 million in three years on the A$1.1 billion takeover that was agreed in 2016. A number of fee-for-no-service issues were later uncovered at the advice business, which resulted in provisions of more than A$100 million for customers who were wrongly charged. The Australian Financial Complaints Authority has since referred StatePlus to the Australian Securities and Investments Commission over a potential breach of the law due to the wrongly-charged fees.

First State Super chief investment officer Damian Graham said the fund had learned a number of lessons from its investment in StatePlus.

Source: The Australian Financial Review

CHINA

China Investment Corporation (CIC) has added to its investments in credit markets in recent months, especially investment-grade loans in the US, after the Federal Reserve eased a liquidity crunch, executive vice president Zhao Haiying said.

The $941 billion sovereign wealth fund also bolstered holdings in healthcare and information technology stocks and added exposure in regions like Asia where there was “less uncertainty” about the spread of the virus, she said.

CIC is looking for more resilient assets in markets battered by the coronavirus pandemic. It sees a diversified portfolio as the best way to weather its biggest test since inception in 2007. Its plan to boost alternative and direct investments to 50% of global assets by the end of 2022 remains unchanged.

Source: Bloomberg

JAPAN

Sony Corp announced on May 20 that it would buy out its unit Sony Financial Holdings, of which it owns about 65%. The financial holding company has a bank and life and casualty insurers under its umbrella.

Sony said it would spend $3.7 billion to make the banking and insurance unit a wholly owned subsidiary. Sony, which owns about 65% of the financial unit, plans to buy the remaining shares through a tender offer that will close on July 13.

The Japanese electronics and entertainment group intends to combine its artificial intelligence and other technologies with the expertise of Sony Financial, according to a report by Nikkei Asian Review.

Source: Asia Insurance Review

KOREA

National Pension Service (NPS) will take on more risk raising its overseas equities allocation by five percentage points by 2025 at the expense of domestic bonds as it seeks to maintain an annualised return target of just over 5%.

Health and welfare minister Park Neung-Hoo, who is chairman of NPS's fund management committee, announced the strategic asset shift for the W737.5 trillion ($597.6 billion) pension giant. It means NPS will invest 35% of its portfolio in overseas equities by 2025, up from last year's 30% target for 2024. The pension fund is aiming for a 22.3% weighting by the end of 2020, up from 22% as of February 20. 

NPS will need to greatly cut its domestic bond allocation. It is aiming for a 25% portfolio weighting by 2025, but by the end of this year domestic bonds are slated to account for 41.9% of NPS' portfolio.

Source: Pensions & Investments

Korea’s Teachers’ Pension Fund will chase infrastructure facilities and industrial park properties in developed countries for overseas alternative investments, while focusing on e-commerce and daily necessities industries for its equity portfolio, said chief investment officer Lee Kyuhong.

Overall, the $17 billion pension scheme will remain cautious about alternative investment and scale back equity holding slightly, he added. “We are not in a situation to make aggressive investment. We will slightly cut equity holding and take a conservative approach towards alternative investment,” Lee said in an interview.

He cited recent economic indicators, corporate bond yields and volatility measures such as the Vix index, saying they all indicate the economy remains in a crisis situation.

Source: Korean Investors

The Government Employees Pension Service (GEPS) plans to abandon its principle of hedging the currency exposure on its overseas alternative assets, joining a growing number of South Korean pension funds that are willing to take foreign exchange risks.

GEPS will revise its guidelines on investment objectives, policy and strategies soon to drop the currency hedge strategy for alternative investments, according to investment banking sources on May 21. It was set to finalise the revision, which will also includes the Stewardship Code introduction, at its steering committee meeting due on May 25.

Currency hedging costs have eaten into returns from overseas investments at South Korean pension funds because they have to pay higher interest rates to enter into the hedge contracts. Last year, National Pension Service discontinued hedging currency exposure for all types of global investments. Teachers’ Pension and other pension funds in South Korea have since made similar moves.

Source: Korean Investors

South Korea’s sovereign wealth fund, Korea Investment Corporation, bought up three Canadian cannabis stocks as they dipped to 52-week lows in the first quarter of 2020.

Though the value of the cannabis holdings is a modest $8 million, it is the latest sign the stigma associated with the legal industry is slowly eroding in international finance circles.

Seoul-based KIC added federally licensed Ontario producer Cronos Group to its portfolio, according to a disclosure filed with the US Securities and Exchange Commission. The sovereign wealth fund took on 45,800 Cronos shares, worth roughly $257,000.

Source: Marijuana Business Daily

MALAYSIA

Khazanah Nasional completed a placement of 172.3 million shares in Telekom Malaysia at RM4.27 ($0.23) per share, raising gross proceeds of RM735.7 million ($168.6 million).

This was the sovereign wealth fund's second share sale in a utility this year, having sold 85 million shares, or a 1.5% stake, in Tenaga Nasional on April 24, according to a filing with Bursa Malaysia. However, the transaction price was not revealed in the filing.

In a statement, Khazanah said the Telekom Malaysia shares placement price represents a 3.61% discount to the closing market price of RM4.43 ($1.02) on May 21.

Source: The Edge Markets

MIDDLE EAST

Saudi Arabia’s Public Investment Fund (PIF) has been busy seeking overseas bargains amid Covid-19, even as the country is grappling with its worst economic crisis in decades.

Among the investments made by the $325 billion fund in April alone were the purchase of 5.7% stake worth around $500 million in Live Nation, a US entertainment company battered by the crisis, its building of a 7.3% holding in cruise line operator Carnival.

“There’s a disconnect between the dire domestic fiscal situation [at home] and the fund’s continuous outward investments,” said John Sfakianakis, a Gulf expert at Cambridge university. “And that complicates the economic recovery due to finite sources of funding.”

Source: Financial Times

SINGAPORE

Edtech startup WhiteHat Jr is looking to raise up to $50 million in a fresh financing round and has received interest from several venture capital, private equity and sovereign funds, according to people familiar with the matter.

Singapore sovereign wealth fund GIC is among those considering investment, alongisde home-grown private equity firm Multiples Alternate Asset Management and venture capital firm Sequoia Capital. The talks are still at an early stage, the sources said.

Source: Vccircle

GIC has anchored the $50-million Series E funding in Amplitude Analytics, a San Francisco-based startup that tracks online user behaviour in real-time.

The funding round, which takes the product intelligence startup to unicorn status, also included Sorenson Capital and existing investors Sequoia Capital, Benchmark, Battery Ventures, IVP and Lead Edge Capital, according to an announcement.

Source: Deal Street Asia

TAIWAN

Fubon Life Insurance is investing $203 million into three private equity funds, underscoring the insurer’s plan to further increase exposure to alternative assets.

The investments include $100 million in US manager KKR’s Asia Pacific infrastructure fund, $60 million in US technology-focused private equity manager Thoma Bravo’s buyout fund and €40 million ($43 million) in a fund from CVC Capital Partners.

The latest investments come on top of the $312 million Fubon Life poured into five global private equity funds over the first four months of 2020, raising the insurer’s total private equity investments thus far this year to $515 million.

Source: Asia Asset Management

Cathay Life's profit more than doubled to NT$15.2 billion in the same period, mainly because of a rise in disposal gains from bonds, according to credit rating agency Moody’s.

Despite the headline jump in profit, the disruptions from the coronavirus outbreak has weakened the insurer's capitalisation and will strain its recurring yield. These stresses on the insurer's credit underpin the negative rating outlook.

Cathay Life's high equity investments continue to expose its capital base to market movements. Its capitalization declined by 19.4% to NT$479 billion at the end of March from NT$595 billion at the end of 2019 mainly as a result of fair value losses on equities from outsized equity market corrections. Nonetheless, its capitalisation has rebounded to NT$566 billion at the end of April.

Its management also expects recurring yield to stay at a lower level in 2020 compared with 2019, mainly a result of US interest rate cuts.

Source: Moody’s

INTERNATIONAL (EXCLUDING ASIA)

US public pension funds’ average funding ratios for have dropped to 60% or less, down from 74% before the Covid-19 crisis, and they will need to continue raising their alternatives exposure to hit return targets, said Michael Moran, senior pension strategist at Goldman Sachs.

In a video interview with Yahoo Finance, he said: “Many of these plans have a 6.5% to 7% nominal return target, and I think many of them are questioning, ‘How do I hit that target in an environment where 30-year Treasury bond yields are below 1.5%?’

“It just becomes more challenging, and they’ll have to become more nimble, more tactical,” he said. “Certainly many of them have moved to alternatives over the past number of years, and I think that just accelerates going forward.”

Source: Yahoo Finance