Insto roundup: Closure plan for super funds; Korean insurer rate struggles

ASIA

Among Asian investors, Korean and Singaporean investors invested the most in foreign commercial real estate in the first half of this year, and Europe was the most popular destination outside the region for Asian capital, according to property services firm CBRE.

Total Asian commercial real estate investment in the first half fell 25% year-on-year to $19 billion, due to the “rebalancing of portfolios by Chinese investors and global economic uncertainties”.

Singaporean investors spent $5.7 billion on offshore commercial property in that period, while South Koreans chalked up $6.8 billion worth of overseas transactions.

Source: Business Times, IPE Real Assets

AUSTRALIA

Officials from the treasury department, Australian Prudential Regulation Authority (Apra) and Australian Securities and Investments Commission read superannuation industry executives the riot act over an "inertia in reform" and discussed how best to close down underperforming funds. 

The discussion took place in the wake of January's landmark Productivity Commission review. While the discussion was meant to cover other areas, closing funds was the central topic. Several attendees urged the government to put off the recommendation because of the volume of change working its way through the sector.

They argued that Apra needed to be given more time to propose a detailed methodology on how underperforming funds might be identified and which players might be required to merge. The prudential regulator is proposing later this year to rate super funds as red, amber or green as a mechanism to weed out underperforming funds.

Source: Australian Financial Review

Troy Rieck, the recently departed Equip Super chief investment officer, is headed to the A$13 billion ($8.74 billion) LGIAsuper, the fund confirmed.

Tony Rieck

Rieck announced his departure from Australia’s Equip earlier in August as the organisation plans to merge with Catholic Super. When the two officially join forces, the new organisation will house A$26 billion in assets under management.

Source: Chief Investment Officer

First State Super is planning to ramp up its domestic loan investments to around A$2 billion to A$3 billion ($1.35 billion to $2.03 billion) in the next two to three years, rebalancing a A$5 billion credit income portfolio that is mostly invested overseas.

The suprannuation fund's strategic change comes in response to a gradual pullback in lending by domestic Australian banks as a result of higher capital requirements and recent regulatory scrutiny, including a Royal Commission into the financial sector. 

First State Super is poised to become Australia’s second-largest superannuation fund with about A$120 billion in funds under management from 1.1 million Australians after its proposed merger with Victorian Superannuation Fund, which is expected to be completed by mid-2020.

Source: Basis Point; Reuters

HONG KONG

The Hong Kong Monetary Authority (HKMA), which manages the Exchange Fund, has acquired a 25% stake in Brookfield’s Wynyard Place development in Sydney, for a reported A$450 million ($303 million).

AMP Capital, an existing investor in the A$1.8 billion project, acquired the stake on behalf of the HKMA.

AMP Capital’s Wholesale Office Fund last year bought a 25% stake in the office tower, which offers retail space atop the Wynyard train station. Another AMP Capital client, UniSuper, an industry super fund, took a 24.9% stake.

Source: IPE Real Assets

INDIA

Tata Sons-controlled Indian Hotels Company (IHCL) and its Singapore partner GIC has identified seven to eight properties for a buyout possibility, a top IHCL official has confirmed.

Puneet Chhatwal, a managing director at IHCL, said the firm was in the process of identifying a list of seven to eight assets. "We are looking at several distressed assets. Hopefully within the next three months we will be able to announce (the buyout of) at least one asset if not two."

The Indian hotels group for the Taj Hotels and Ginger brand announced a tie-up in May with Singapore’s sovereign wealth fund to acquire luxury and upscale properties in India. The acquisitions will be housed under a separate special-purpose vehicle managed by IHCL.

Source: Money Control

JAPAN

Japan’s T&D Insurance has entered into an alliance with Tikehau Capital, a French alternative asset manager, that will focus on marketing the latter’s private debt products to Japanese pension clients.

The partnership, which will leverage the know-how and network of T&D Asset Management, could potentially be extended to other asset classes. The move follows the opening of Tikehau’s Tokyo office in spring this year.

Source: Tikehau Capital

KOREA

National Pension Service (NPS), Korea’s largest state pension fund, logged a 7.2% return in its portfolio in the January-June period this year, with overseas stocks returning 19.9% and foreign bond investments 9.6%.

NPS, which managed W696.6 trillion ($576.3 billion) as of end-June, said these returns compared to domestic stocks’ six-month profit of 6.9% and that of Korean bonds at 3%. Alternative investments’ rate of return came to 4.2%.

Aside from the performance of each asset class, NPS cited a strong dollar against the Korean won, mainly resulting in a higher return in overseas bonds and alternative investments.

Source: Yonhap News Agency, The Korea Herald

The recent decline in Korean interest rates is expected to adversely affect the domestic insurance industry’s growth and profitability, while the cost of hedging offshore investments is rising as the gap between US and Korean rates grows, said a report from the Korea Insurance Research Institute. 

The Bank of Korea cut the benchmark rate from 1.75% to 1.5% in July, which caused insurers' duration gap, or interest rate risk, to grow. Meanwhile insurers' foreign exchange hedging costs are estimated to have reached W1.80 trillion to W2.1 trillion ($1.48 billion to $1.73 billion) last year.

The report suggested the insurers aggressively restructure their debts and diversify their foreign hedging methods. 

Source: Business Korea

Korea Midland Power, a unit of South Korea’s utility giant Kepco, has acquired a wind power project in Sweden in a consortium with a German pension fund and Korean financial investors for W360 billion ($298 million).

Funding for the deal is composed of W200 billion in equity financing and W160 billion in debt, according to investment banking sources. W80 billion of this stems from an investment vehicle collecting capital from Korean brokerage companies, insurers and retirement funds.

The acquisition of the project’s owner Stavro Vind was recently approved by the European Commission.

Source: Korean Investors

MALAYSIA

Former chief executive for Lembaga Tabung Haji (TH), Malaysia’s pilgrim fund, said the “worst is over” as the turnaround plan to stabilise the fund has started to bear fruit.

“We have subtracted the bad assets and so on. I told the Prime Minister’s Office it is time for me to go. TH’s excess over liability stood at more than MYR1 billion ($237.1 million),” said Seri Zukri Samat. He had been leading the fund with the mission to steer the turnaround since July last year. He was succeeded by Nik Mohd Hasyudeen Yusoff on September 1.

The former head said a reserve account had been created and about MYR400 million had been deposited in it. Previously the fund had no reserve.

Source: Malaymail

SINGAPORE

Singapore sovereign investor Temasek and private equity firm Hillhouse Capital have each acquired a 1%-stake in China’s Aier Eye Hospital Group, according to a disclosure filing by Aier at Shenzhen Stock Exchange.

Source: Deal Street Asia

Singapore’s Central Provident Fund Investment Scheme funds posted a 1.9% gain in the second quarter of 2019, according to data from research firm Refinitiv’s Lipper on August 28.

All asset types saw positive returns, with mixed-asset funds seeing the biggest increase, with 2.04%. This is followed by equity funds with 1.94%, bond funds at 1.61% and money market funds with 0.34%.

Source: Channel News Asia

INTERNATIONAL

Private equity was the top-performing asset class for US public pension portfolios for the seventh straight year, according to the latest annual research report from the American Investment Council (AIC).

The study, which analysed 165 US public pension funds, found that 91% of the sampled pensions had some exposure to private equity. The asset class made up 8.7% of public pension portfolios on a dollar-weighted basis and provided annualised returns of 10.2% over a 10-year period in 2018. This compared to an 8.5% return for public equity and 4.8% apiece for fixed income and real estate over the same period.

The public pension funds with the largest private equity investments are the California Public Employees’ Retirement System with $27.19 billion, Teacher Retirement System of Texas ($21.24 billion), Washington State Investment Board ($20.92 billion), California State Teachers’ Retirement System ($18.32 billion) and New York State Common Retirement Fund ($17.5 billion).

Source: Chief Investment Officer