Insto roundup: Insurers face double-whammy; Asia private credit booming
Hesta, one of Australia's largest superannuation funds, won't follow its larger offshore peers and set targets to cut carbon emissions across its A$55 billion ($36 billion) portfolio but will continue its engagement approach.
Hesta's website said its Australian and international stock holdings were about 1% more carbon-intensive than its benchmark indexes as of June 2018, but chief executive Debby Blakey said the fund expected this figure to fall over time.
She said Hesta had joined the Transition Pathway Initiative, a global programme that assess firms' readiness to shift to a low-carbon economy. "We've got actionable data that can help identify companies that are firstly doing it well and second of all, those, of course, who need to do more," Blakey added. "Before we get to divestment, it will inform our advocacy, which I think is far more powerful."
Source: Pensions & Investments
Cbus Property and Scentre Group unveiled its Castlereagh Street vision ahead of the decision on the development application this month. Construction on the 111 and 121 Castlereagh Street sites, which is estimated to cost A$300 million ($184.1 million), is expected to start at the end of May if granted approval by the City of Sydney, and will lead to a 22-storey residential tower.
Cbus has proposed six levels of serviced office space measuring 11,500 square metres above the anticipated extension of Westfield Sydney developed by Scentre Group.
Source: The Urban Developer, Sydney Morning Herald
Melbourne-based IFM Investors' chief economist Alex Joiner said he expected pension funds to buy more infrastructure assets as they recalibrate in the aftermath of the coronavirus outbreak, which will likely send the global economy into a recession.
Joiner said the crisis had reinforced the view that returns will be lower for an extended period of time and investors will continue to shift investments to compensate. He added that while Australian superannuation funds were already heavily invested in infrastructure, UK and US assets owners were “under invested”.
“I’d put the case forward for owning mid-risk assets,” Joiner said. Investors “might not want to be taking as much risk as [they] would be in the equity market and may also not want generic fixed income either, but there is a whole range of assets that have become more desirable.”
Source: Professional Planner
Australian asset owners are starting to follow some of the world's largest institutional investors and put money into real estate technology, or realtech. Jonathan Hannam, co-founder of investment firm Taronga Group, said institutional demand for realtech had exploded over the past 12 months.
“Real estate technology is the next wave of property investment. Institutional capital is demanding that the industry be more tech savvy because it can lead to greater efficiency and higher returns," said Hannam.
Venture capital investment in realtech has grown 14 times over the past five years to $25.6 billion in 2020, according to research firm CreTech, and Hannam said most of this came from the Asia Pacific region. However, the Abu Dhabi Investment Authority, Oxford Properties (the real estate investment arm of Canadian pension fund Omers) and firms like Brookfield Asset Management have allocated capital to realtech via their property investment teams.
Source: Investment Magazine
China’s total pension assets are expected to have grown by 19% in 2019 to more than Rmb15 trillion. This is a year-on-year growth rate similar to its long-term average of 17% recorded over the last decade.
The increase was due to the development of occupational annuities and continued capital injection under pillar one (the government scheme). Fundamental developments, including opening up to foreign entrants, additional use of professional managers, and the beginnings of a centralised operating model, also bolster hope for sustained longer-term development, according to KPMG’s latest report.
The Mandatory Provident Fund Schemes Authority (MPFA) is mulling whether to let MPF funds to invest more in real estate investment trusts (Reits).
Although an MPF fund can invest in Reits listed in Hong Kong, Australia, the UK and the US, the amount cannot exceed 10% of any single MPF fund. MPFA is considering to relax the restrictions as Reits can give stable returns.
Meanwhile, despite industry calls to relax the investment restrictions of A-shares, it was understood that the MPFA is not considering this at the moment.
Source: Hong Kong Economic Journal
The Government Pension Investment Fund (GPIF) has brought fixed income and alternative assets, such as real assets, under the umbrella of its stewardship principles for its external asset managers.
GPIF first published stewardship guidelines for asset managers in 2017.
Japanese purchases of overseas debt surged to a record high during the first week of March, in what investors say is likely a coordinated effort by government pension funds to stem a massive rally in the yen.
Domestic investors bought ¥4.2 trillion ($40.6 billion) in foreign bonds on a net basis during the week ended March 7, the highest on record, according to finance ministry data. The purchases came in the wake of a surge in the yen to a multi-year high against the dollar as investors shunned riskier assets amid the coronavirus outbreak.
A finance ministry official declined to comment when asked what was behind the sudden spike in foreign bond purchases, but market watchers said the move bore the hallmark of GPIF.
South Korean institutional investors have been loading up on stocks this month despite a virus-induced market crash, data showed on March 13.
The country's state pension fund and other institutions remained in net buying mode between March 2 and Thursday, purchasing stocks worth nearly W1.1 trillion ($910 million), according to the data from the Korea Exchange. The figure represents a drastic increase from their February net buying tallied at W348 billion.
Institutions' net buying stood at W1.6 trillion between January 20, when South Korea reported its first confirmed coronavirus case, and March 12.
Source: Yonhap News Agency
A race for the takeover of Prudential Life Insurance Company of Korea is expected to become a three-way battle as Woori Financial Group is highly likely to support IMM Private Equity by offering acquisition financing, industry sources said on March 16.
This would see three firms – IMM, KB Financial Group and MBK Partners – competing for the Korean unit of US insurance giant Prudential Financial. Market observers have expected Woori to look for an indirect takeover, because financial authorities may not approve of its eligibility to become the insurer's largest shareholder.
According to sources, Woori will participate in the main bid on March 19 through acquisition financing, which is capital that is obtained for the purpose of buying another business.
Source: Korea Times
Samsung Life Insurance is seeking to make inroads into Vietnam through an equity investment in Bao Viet Life, the Southeast Asian country's largest life insurer.
Industry sources said on March 10 that the firm was in talks with Bao Viet Life to acquire part of the latter's shares. It is the seventh-largest listed company in Vietnam.
Source: Korea Times
Taiwanese life insurers are now not allowed to invest in target-maturity bond funds that are linked to investment-linked policies in sub-standard fixed income assets, according to a new regulation that took effect on March 1.
The underlying assets of these bond funds cannot be bonds rated below Baa1 from Moody's or equivalent ratings from other rating agencies, and the holding of bonds rated Baa1 cannot account for more than 40% of these bond funds' net asset value.
The new rule is credit positive for insurers because it would mitigate the risk of misselling by lowering the credit risk in investment-linked policies.
Source: Moody’s (registration required)
Global insurers have at least half of their $20 trillion-plus in assets invested in government bonds, but yields have dropped heavily amid the coronavirus pandemic. Meanwhile, equity exposure also been hit, with $11 trillion having been wiped off global stocks’ value as of March 12, according to Refinitiv Datastream.
“If the economic situation deteriorates, [insurers] will no doubt be reassessing their portfolios and exposures,” said Ferdia Byrne, insurance partner at consultancy KPMG.
This comes as a double-whammy on top of expectations that trade credit insurers will face bigger payouts from rising insolvencies as a wide range of companies, from airlines to retailers, feel the strain.
The Indiana Public Retirement System last week March 9 invited asset managers to pitch for emerging market debt mandates to add to the $814 million (as of October 31) it has in the asset class.
The $30 billion pension fund expects to retain one or two managers and is open to adding exposure to the JP Morgan Corporate Emerging Bond Index, where it has none currently.
Asset managers submitting pitches must have at least $50 billion in total AUM and $5 billion in their EM debt strategy. The initial contract term will be five years, and there may be one or more renwals under the same terms and conditions, up to a maximum term of 10 years. The deadline for inquiries is March 19 and for submissions is April 27.
Source: Indiana Public Retirement System
Institutional investors, including Australian superannuation funds, are allocating more to private credit strategies in Asia as the region’s banks have reduced lending to the middle market in favour of larger companies.
The same bank dynamics that propelled the popularity of direct lending in Europe and the US were starting to play out in Asia, with banks in the latter region becoming less motivated to lend to small and medium-sized companies, said portfolio manager Jun Wooseok of Intermediate Capital Group.
A recent McKinsey report showed general private market fundraising in Asia had slowed for a second year in 2019, falling by 25% year-on-year, but that private debt fundraising had bucked the trend, increasing 23% last year in the region.
Source: Investment Magazine
UK supermarket group Tesco is planning to pump £2.5 billion ($2.75 billion) into its pension fund and hand out £5 billion to shareholders after lining up the sale of its Thai and Malaysian businesses.
The company said the planned contribution to its pension fund would de-risk the business by reducing debt. It added that the payment would eliminate the fund’s current deficit and “significantly reduce the prospect of having to make further pension deficit contributions in the future”.
Thai conglomerate CP Group has agreed to buy Tesco Lotus in Thailand, which has a network of nearly 2,000 stores, and Tesco Malaysia, which has 68 stores, for $10.6 billion.
Source: The Guardian (UK)