Insto roundup: China instos approved for debt-to-equity swaps; NPS buys private assets
AUSTRALIA
Australia’s superannuation funds have issued early-release payments worth a total of A$6.3 billion ($4.1 billion) to 830,000 members as of May 3, according to a statement on Monday (May 11) by the Australian Prudential Regulation Authority (Apra).
The average payment was A$7,629 and the average payment processing time was 3.1 days after receiving the application from the Australian Tax Office, the statement said. The latest data also found that trustees are processing 96% of payments within five business days.
Source: Apra
As Covid-19 pushes down asset prices, Cbus investment chief Kristian Fok islooking to gradually increase the fund's strategic asset allocation to infrastructure and other assets that are benefiting from lower interest rates. It made the first part of that change as the Covid-19 pandemic put pressure on asset prices.
Cbus entered the downturn 6% underweight unlisted assets, after forgoing bidding on transactions such as Hobart Airport and Victorian Land Titles. Fok also sees direct lending as an immediate opportunity. About 26% of Cbus's total assets are managed internally.
Source: Financial Standard
Queensland wants to use its new A$5 billion ($3.3 billion) future fund to buy a stake in Virgin Australia. Queensland has instructed the state’s biggest asset manager, QIC, to start work on a potential bid as part of its mandate to manage the new Queensland Future Fund.
Source: Financial Review
CHINA
Wallace Yu has resigned as head of the multi-asset group at China Investment Corporation (CIC) after a decade with the $941 billion sovereign wealth fund.
He had joined in 2009 and looked after some $10 billion in AUM for the multi-asset portfolios and quantitative strategies. This follows a number of departures, most of which came during a two-year stretch when CIC was without a top leader until Peng Chun was appointed as chairman in April 2019.
Roslyn Zhang, who was in charge of hedge fund allocations in the same department as Yu, resigned around the end of last year. Other CIC departures in recent years include Zhang Qing, who was executive vice president of direct investments, and Wang Ou, who led the private equity department.
Chinese insurance firms, pension funds and qualified retail investors will be allowed to invest in banks' investment plans that have debt-to-equity swaps as underlying assets. The China Banking and Insurance Regulatory Commission has outlined the new rules in a policy document.
Asset investment companies controlled by major banks are now allowed to set up investment plans with debt-to-equity swaps as underlying assets, including convertible bonds, debt-to-equity special bonds, ordinary shares, preferred shares and debt-to-preferred shares.
The products should be managed as closed-end funds, and investors can transfer shares during the period.
Source: Asia Insurance Review
China officially scrapped quota restrictions on the qualified foreign institutional investor (QFII) programme and the RMB QFII programme, the foreign exchange regulator and the central bank said on May 7.
The State Administration of Foreign Exchange and the People’s Bank of China said last September it would remove the limits for the two major inbound investment systems and simplify procedures for outbound remittances. This has come after more channels were made available for foreign investors to participate in China’s financial markets without quota limits.
Qualified foreign investors need now only go through a registration process to wire money into and out of the country, the two authorities said.
Source: Caixin
Japan revised its Foreign Exchange and Foreign Trade Act to require overseas investors to notify the government via the Bank of Japan if they plan to acquire a stake of 1% or higher in listed Japanese companies in 12 sectors, including oil, railways, utilities, arms, space, nuclear power, aviation, telecoms and cybersecurity. The previous threshold was set at 10%.
Sovereign wealth funds and pension funds are eligible for a ‘regular exemption’ from the requirement if they pass a screening process and execute an memorandum of understanding with the Japanese government. But the revisions state that post-investment reports will still be required if such asset owners exceed the 1% threshold.
Source: Regulation Asia
KOREA
The April 29 move to raise the cap on Korean insurers’ overseas investment is likely to lead to higher uptake of high-risk assets, in particular non-traditional assets, thereby increasing their liquidity risk, rating agency Moody’s said in a report.
However, the change will also allow insurers to buy longer-dated assets – which are relatively scarce in Korea – and better manage asset-liability duration matching to prepare for the shift to tighter accounting and solvency regimes in 2022-2023.
As of end-2020, Korean insurers will be allowed to invest up to 50% of the assets in both their general and separate accounts abroad, up from the current 30% of their general account assets and 20% of their separate account assets.
Source: Moody’s
National Pension Service of Korea (NPS) and US real estate investment firm Hines Interest acquired a 49.5% interest in Manhattan adaptive-reuse project One Madison Avenue from US-based Reit SL Green Realty Corp.
NPS and Hines committed $492.2 million in aggregate equity to the project to rejuvenate the building, according to an announcement. Meanwhile, SL Green and Hines will co-develop the $2.3-billion project. Upon completion, slated for 2024, One Madison Avenue will comprise 1.4 million rentable square feet.
Scott Kim, head of NPS’s real estate investment division, said the new investment would strengthen the already proven partnership with its American partners. NPS’s alternative portfolio accounted for 11.6% of its W743 trillion won ($628 billion) assets under management as of January 31, 2020.
Source: DealStreetAsia
MALAYSIA
The Employees Provident Fund (EPF) has approved withdrawals totalling RM1.66 billion ($383 million) by 3.5 million contributors under the i-Lestari initiative launched last month, said deputy finance minister Abdul Rahim Bakri.
The money, from Account 2, will be credited to their bank accounts between May 4 and May 18, he said in a statement.
“The EPF i-Lestari initiative, which involves an allocation of RM40 billion ($922.9 million), will inject liquidity of RM3.3 billion per month on average into the local economy,” he said.
Source: Free Malaysia Today
SINGAPORE
Carlyle Group and Singapore sovereign wealth fund GIC have backed off from acquiring a stake in American Express Global Business Travel, giving rise to a legal battle. The deal would have valued the pandemic-hit company at $5 billion.
The two investment groups were due to consummate the transaction at a virtual signing ceremony on Thursday, but indicated they would not attend, according to a note to lenders who had signed up to provide financing for the transaction.
Source: Financial Times
The net profit of Great Eastern Holdings has dropped 90% year-on-year for the first quarter of 2020, according to a financial results statement by the insurer.
The firm, which is the insurance arm of OCBC Bank, reported net earnings of S$33.9 million ($24 million) for the first quarter of 2020, down from S$342.7 million during the same period last year.
Its operating profit in fact more than doubled, from S$148.7 million to S$298.6 million, but this was negated by investment losses due to unfavourable financial market conditions arising from the Covid-19 outbreak.
Source: Insurance Business Asia
TAIWAN
Taiwan insurers' investment yields will be under stress in the next 12 to 18 months as they will reinvest their maturing bond holdings at lower yields. As a result, some insurers could start reporting negative investment spreads, which will directly weaken profit because of their high reliance on spread gains.
Their asset risks also remain high as insurers have large exposure to financial market volatilities. They maintain high amounts of equity and foreign investment to fulfill promised high returns to policyholders. Foreign investment was close to 70% of the industry's invested assets at the end of 2019. The industry's practice to only partially hedge their sizeable foreign investments exposes profit to exchange-rate volatilities.
Capitalisation remains weak as well. Their capital buffer to support premium growth and absorb investment losses will remain weak because of weak internal capital generation. Increased equity market volatilities also pose a risk to capitalization.
Source: Moody’s
INTERNATIONAL (EX-ASIA)
US public pension funds lost around $850 billion in the first quarter of 2020 of the $4.8 trillion (as estimated by the Federal Reserve) that they held in assets as of December 31, estimates S&P Global Ratings.
Escalating pension obligations caused by the sudden-stop recession are likely to be felt for years by US state and local governments, the agency said in a report. S&P Global Ratings puts the average funded ratio of US public pension funds at 73%. If returns stagnate, it estimates the ratio could drop to 60%.
For the market to counter the recession and maintain that ratio, public pensions will need to return nearly 30% in the second quarter of 2020. That would bring the annual return back from its current minus -12% up to the average assumed rate of 7.25%.
Source: S&P Global