Insto roundup: Korea pensions post decent returns; End of "golden age" for SWFs

AUSTRALIA

Australia’s biggest super fund, AustralianSuper, has dismissed as inadequate Rio Tinto’s decision to strip bonuses from executives over the destruction of 46,000-year-old caves at Juukan Gorge in the Pilbara.

Ian Silk, the chief executive of AustralianSuper, said a report into the debacle by Rio Tinto’s board “highlights profound systemic, operational and governance failings”.

“AustralianSuper has met with the chair of Rio Tinto and expressed our view that the proposed penalties fall significantly short of appropriate accountability for those responsible,” Silk said.

Source: The Guardian

Hostplus, the A$45 billion ($33 billion) industry fund for hospitality, sport and tourism, has increased optional insurance premiums for some members by up to 73.7%.

Non-default salary continuance insurance premiums for Hostplus members will increase from October 1. Salary continuance will also be renamed income protection at the start of October.

The biggest increase will hit those with non-default salary continuance policies with a 'to age 65' benefit period - these premiums will increase by 73.7%.

Source: Financial Standard

CHINA

Beijing’s key policies to exempt firms from contributing to the social security fund for a few months to counter the impact of Covid-19 has increased the financial burden on already cash-strapped local governments, which have been subsidising the fund for years.

Without these local government subsidies, China’s social security fund would have been operating at a deficit every year since 2013. And that shortfall would have likely surged to nearly Rmb1.2 trillion ($174 billion) last year, based solely on the contributions from companies and employees, as well as the small investment return that the fund generates.

But instead, the fund’s balance was around Rmb9.6 trillion at the end of 2019. According to the Ministry of Finance, in the first half of 2020, the fund’s revenue fell by 15% from a year earlier, to Rmb3.5 trillion, mainly because of the pandemic and the exemptions or delays in social security contributions, while expenditures rose by 6.5% to Rmb3.6 trillion. That left a gap of Rmb120 billion to be filled.

Source: South China Morning Post

Belgian insurer Ageas has agreed to invest in Taiping Reinsurance, receiving 25% of the reinsurer’s enlarged shares for a total cash consideration of $400 million.

The transaction allows Ageas to expand in the fast-growing Asian reinsurance market, particularly in Hong Kong and mainland China, and increase the share of non-life activities in its business portfolio. The deal, which is still subject to regulatory approval, is expected to close in the last quarter of this year.

Source: Insurance Business Asia

China Reinsurance’ total investment income in the first half of the year grew 22.8% year-on-year to Rmb7.6 billion ($1.11 billion), while its annualised total investment yield for the first half of the year was 5.48%, representing a year-on-year increase of 29 basis points.

The company actively seized opportunities amid the volatile and low interest rate environment to optimise its portfolio allocation and its equity investments outperformed the market during Covid-19, it said.

Its total assets have climbed 20.4% to Rmb477.4 billion, while its total liabilities have also grown 26.6% to Rmb379.2 billion during the period.

Source: China Reinsurance

INDIA

After a slow start, fund-raising by the National Investment and Infrastructure Fund (NIIF) has gained some momentum of late. However, close to five years after its inception, the quasi-sovereign wealth fund is yet to develop into a large enough financing vehicle to be able to meaningfully anchor the government’s ambitious investment plans under the Rs111.88 trillion ($1.52 trillion) National Infrastructure Pipeline (NIP).

A spokesperson with NIIF said it manages assets of $4.3 billion across its three funds. Much of NIIF’s fund-raising and investments have materialised only after 2018. Its Master Fund has now drawn investment commitments of $2.1 billion from investors. The Master Fund focuses mainly on core infrastructure and operating assets.

Source: Financial Express

JAPAN

Japan’s Government Pension Investment Fund (GPIF) reported a 15.3% drop in the carbon intensity of its equity and corporate bond portfolio between 2018 and 2019, a change it attributes mainly to its shift to low-carbon indices.

Source: Responsible Investor (paywall)

KOREA

The National Pension Service, posted a 0.5% semi-annual return on its W752.2 trillion ($635.5 billion) assets under management, with the 2.41% and 3.46% stock losses it made from domestic and foreign stocks, respectively, being offset by a positive 2.13% yield from Korean bonds, 7.9% from foreign bonds and 4.4% from alternatives.

NPS said the first-half recovery from the Covid-19 impact was down from the monetary expansion, with a weakened won against the dollar also contributed to the upshot in cross-border investments across all asset classes.

Other major public pension funds also posted positive half-year returns. Teachers’ Pension made a 2.49% return after seeing positive returns from alternative assets, fixed-income assets and foreign stocks. Government Employees Pension Corp., recorded a 0.5% return, while Korea Teachers Credit Union returned 5.4% after seeing positive returns across stocks, bonds and alternatives. The latter in particular, which account for over 55% of its total assets – led to a 6.9% yield from the half-year performance.

Source: Korea Herald

South Korea’s sovereign wealth fund has substantially increased its investment in conglomerate General Electric and sold shares in pharmaceuticals giant Pfizer, car maker General Motors (GM) and networking giant Cisco Systems.

Korea Investment Corporation, which managed $157.3 billion as of the end of 2019, bought 3.3 million additional GE shares in the second quarter, raising its investment to 9.1 million shares. This came after GE stock had tumbled 40.8% as of Friday (August 28). By comparison, the S&P 500 index, a measure of the broad market, is up 8.6% year to date.

KIC sold 1.4 million Pfizer shares to end the second quarter with 3.1 million shares of the drug giant.

Source: Barron’s

MALAYSIA

The Armed Forces Fund Board (LTAT) confirmed that it has received the nod from Bank Negara Malaysia for its proposal to privatise its 59.44%-owned outfit Boustead Holdings.

In an announcement, LTAT said it received a letter from the central bank saying it had no objections for LTAT to commence negotiations with Boustead, which holds an equity stake in Affin Bank, on the proposal.

Based on the indicative price, the proposed privatisation exercise would cost LTAT around RM660 million ($158.4 million). The indicative offer price represents 45% of Boustead’s net asset of RM1.76 per share as at end-June 2020. It is 14.5 sen or 22.14% higher than the counter’s last closing price of 65.5 sen.

Source: The Edge Markets

The owners of AmMetLife Insurance are exploring options for their Malaysian life insurance business, which could fetch as much as $600 million in a sale, people familiar with the matter said.

US insurer MetLife and Kuala Lumpur-listed AMMB Holdings are working with an adviser for the potential divestment of the jointly owned business, according to the people. A formal sale process could start as soon as this year, said one of the people, who asked not to be identified because the matter is private.

The asset could draw interest from other insurers in Malaysia, the people said. MetLife continues to invest in its business in Asia where demand for insurance continues to be strong, one of the people said.

Source: The Edge Markets

INTERNATIONAL

The “golden age” of sovereign wealth funds has ended, according to academic research that predicts the coronavirus pandemic will result in profound changes of strategy for the state-backed investors.

SWFs, which oversee $6 trillion globally, are being tapped by governments to stabilise budgets and mitigate the effects of the economic fallout of the pandemic, say academics at Bocconi University, New York University and London School of Economics. Funds linked to commodities such as oil, in particular, are “facing the most severe adverse shock in their history”.

“SWFs of all stripes will be called to reassess their strategies and accommodate the requests of their sponsoring governments, in spite of mandates and governance arrangements,” said Bernardo Bortolotti, an economics professor and one of the report’s authors.

Source: Financial Times

Sovereign wealth funds poured a net $7.1 billion into stocks during the second quarter, the most in several years, with the bulk going into non-US equities, data showed on August 27.

The funds also pulled a net $5.2 billion out of fixed income during that period, the most since the first quarter of 2019, according to eVestment data on strategies managed by third-party fund managers.

Global large-cap growth equity strategies took in the most investment during the quarter, a net $6 billion. US equity strategies pulled in only a net $704 million during that time.

Source: Reuters

Berkshire Hathaway said it has acquired slightly more than 5% of the shares in five large Japanese companies, marking a departure for chairman Warren Buffett as he looks outside the US to bolster his conglomerate.

In a statement on Sunday (August 30), Berkshire said it acquired its stakes in Itochu Corp, Marubeni Corporation, Mitsubishi Corporation, Mitsui & Co and Sumitomo Corporation over approximately 12 months.

Berkshire said it intends to hold the investments for the long term and may boost its stakes to 9.9%. A Berkshire insurance business, National Indemnity, is holding the shares.

Source: New York Times