Insto roundup: Super funds’ strong gains; Korean insto investing fears
ASIA
Real estate investment in the Asia-Pacific rose by 14% in the first quarter of 2019 to $45 billion, with a mixture of deleveraging efforts by some Chinese companies leading to offshore investors buying into newly available assets, according to a report by property consultancy JLL.
China accounted for $17 billion of Asia-Pacific transaction volumes between January and March, close to 40% of the total. That was more than double the amount for the same period in 2018, JLL said on May 23.
The increase was helped by the $1.6 billion sale-and-leaseback agreement between China online retailer JD.com and Singapore sovereign fund GIC, as well as Swiss private equity firm Partners Group’s $1.3 billion acquisition of Beijing’s Dinghao Plaza from Sino Horizon Holdings.
Source: Forbes, Jones Lang LaSalle
AUSTRALIA
AustralianSuper will expand overseas to diversify away from its domestic market for the first time, said Ian Silk, chief executive of Australia's largest pension fund.
Silk noted the superannuation fund will open new offices in the US and Asia while expanding the existing branch in London for foreign oppoortunities, which will be added to a portfolio projected to double in value to A$300 billion ($207.7 billion).
The plan will stretch over five years to bolster AustralianSuper's exposure to overseas assets to as much as 60% by 2024 from 44% this year.
Source: Financial Times
The third consecutive victory of the coalition government formed by the Liberal Party and the National Party in Australia's general election means that some of the substantive changes to the superannuation fund sectors set forth by the Labor Party will not be implemented, said law firm Holding Redlich.
The coalition government signalled some of its own reforms, which would include increasing the age for contributions to super schemes without passing the work test and raising the age for the bring-forward rule. It has also started legislating responses to the Royal Commission’s recommendations against misconduct in the banking, superannuation and financial services industry.
Source: Holding Redlich
Superannuation fund returns continued their upward trajectory in April after gaining 6.1% in the first quarter of 2019 as the industry’s holdings in stocks amounted to close to half of the total Australian market. The typically held “growth” superannuation option rose 1.7% in April, research firm Chant West found.
Mano Mohankumar, chief researcher of Chant West, said the 1.7% April rise was a very strong return and to date this financial year the growth option is up 5.2%. He added that the return was unlikely to match the average performance of 9% over the past nine years for growth funds, and that strong gains “should be seen as the exception rather than the rule".
Source: The New Daily
CBH Super, a Perth-based corporate superannuation fund of CBH Group, has been merged into Sunsuper on April 29, marking Sunsuper’s fourth merger in the last 12 months. The incorporation of CBH Super into Sunsuper followed the transition of AustSafe Super, Kinetic Super and the IAG & NRMA Superannuation Plan.
CBH Super, which was open to all West Australian grain growers as associates of the CBH Group on a not-for-profit basis, was managing A$300 million ($207.8 million) of AUM and had 1,300 members at the time of the merger.
Source: Financial Standard
CHINA
Chinese regulators may allow insurers to invest in companies listing and listed on the science and technology innovation board, Shanghai Securities News reported, citing unnamed sources. The board started accepting listing application from technology companies last month.
Regulators will need to set the risk factors for investing into companies on this new board before insurers decide whether to invest in them, as they will need to know how the investments will change their solvency positions. Regulators may refer to the growth enterprises market board when setting the risk factors for the science and technology innovation board
According to a separate media report, regulators are mulling to lift the upper limit of insurers’ equity investment to 40%. It was reported last week that regulators are planning to increase it to beyond the current 30%.
Source: Shanghai Securities News, Shanghai Securities News
INDIA
A Securities and Exchange Board of India (Sebi)-constituted committee has proposed wide-ranging changes to the foreign portfolio investment (FPI) regime, aimed at boosting capital flows into the country by improving ease to doing business, especially for large and well-regulated global institutions.
Liberalised investment caps, foreign direct investment (FDI)-like leeway, easy on-boarding, and permission to invest in unlisted companies ahead of their initial public offerings (IPOs) are among the 50-odd changes suggested by the panel chaired by former Reserve Bank of India (RBI) deputy governor HR Khan. The proposals are open for public comments.
The Khan panel has recommended allowing FPIs to exceed their 10% investment cap. The report says: “Given that FPIs do not exercise any control or influence, it is proposed that prohibition relating to foreign investments in certain sectors should be limited to FDI and not be extended to FPIs. However, such FPIs’ existing investments, including ADR and GDR, may not exceed 49%."
Source: Business Standard
JAPAN
Nippon Life Insurance has entered into a definitive agreement to acquire Reliance Capital’s stake in Reliance Nippon Life Asset Management (RNAM). Reliance Capital and Nippon Life Insurance each own 42.88% of the entity.
Under the terms of the agreement, the Japanese insurer will acquire Reliance Capital’s 32.125% stake in the joint venture for Rp45.2 billion ($649 million).The deal will increase Nippon Life’s stake in RNAM to 75%.
Reliance Capital will sell its remaining stake in the joint venture. Besides, Nippon Life will make an open offer to the public shareholders of RNAM at Rp230 per share. By selling its stake, Reliance Capital is expected to receive proceeds of nearly Rp60 billion. The money will be used by the company reduce its outstanding debt by 33%.
Source: Private Banker International
Japan’s $196-billion Pension Fund Association for Local Government Officials, or Chikyoren, has appointed an offshore private debt mandate to UK-based BlueBay Asset Management and a domestic private equity mandate to Japanese private markets Alternative Investment Capital. The statement from Chikyoren did not disclose the capital allocation for the mandates.
Source: Deal Street Asia
Japan Post Holdings has acquired an equity stake of 1.91% in Daiwa Securities Group, the latter said in a notice on May 27. According to the notice, Japan Post Holdings had 30 million shares in Daiwa as of the end of March, making it the seventh-largest shareholder of the major securities company. The postal service group is estimated to have spent some ¥16 billion ($146 million) on the share acquisition.
Ties between the two companies are strong, with Daiwa having lead-managed the stock listings of the postal holding company and its two financial units, Japan Post Bank and Japan Post Insurance, in November 2015. Last week, they announced an agreement to jointly develop asset management products for individual clients.
Source: Japan Times
Japan’s non-life insurers are facing pressure to rebuild catastrophe reserves amid rising reinsurance costs that follow a catastrophe loss-heavy year in 2018, according to a new AM Best market segment report. Last year marked a record for natural disasters in Japan as a series of events resulted in significant insured losses, the costliest being Typhoon Jebi.
In the report, AM Best states that because of the disasters, Japan’s non-life carriers released a sizeable portion of their catastrophe reserves. The amount of catastrophe reserves released by Japan’s three non-life insurance giants – Tokio Marine & Fire, MS&AD and Sompo – in the third quarter of fiscal-year 2018 (October-December) totalled around ¥340 billion ($3.07 billion). These reserve releases represented a 13% net reduction of the insurers’ overall catastrophe reserves balance.
Those total catastrophe reserve releases were comparable in scale to the amounts released in fiscal-years 2011 and 2012, attributable predominantly to the Tohoku earthquake, the costliest earthquake-related insured loss in Japan’s history.
Source: Business Wire
Two of Japan's three major non-life insurers – MS&AD and Sompo – secured year-on-year growth in group net profits in fiscal 2018, which ended in March, according to their earnings reports. Combined insurance payments by the two plus Tokio Marine & Fire rocketed to ¥1.6 trillion ($146 billion) in the fiscal year, due to the series of natural disasters in Japan during the financial year.
The insurers tried to curb the impact of the disasters by dipping into reserves set aside for future benefit payments and using reinsurance schemes. MS&AD saw its net profit rise 25.1% to ¥192.7 billion, also by selling part of its shareholdings. Sompo Japan recorded ¥146.6 billion in net profit, up 4.9%.
Source: Jiji Press/Nippon.com
KOREA
South Korea's insurance firms saw their profits decline in the first quarter, hit by intensifying competition and auto insurance losses, data showed. The combined net profit of insurance firms operating in South Korea stood at W1.98 trillion ($1.67 billion) in the first-quarter, down 6.2% from a year ago, according to preliminary data from the Financial Supervisory Service (FSS).
Life insurers saw their combined net profit rise 2.6% on year to W1.2 trillion for the quarter, while the combined net profit of non-life insurers dipped 18.4% on year to W718.9 billion.
Insurers' premium income totalled W47.5 trillion won in the January-March period, up 0.4% on year. Their aggregate assets grew 6.15% to reach W1.18 quadrillion at the end of March. Their return on equity declined 1.21 percentage points to 6.88% in the first quarter.
Source: Yonhap News Agency
However, South Korean insurance companies recorded net profits in their overseas operations last year, the first time in eight years. But these overseas business still account for a small proportion of their operations compared to global insurance peers.
According to a report from the Korea Insurance Development Institute, overseas assets of South Korean non-life insurers that are included in the Forbes Global 2000 list account for a mere 1.8% of their total assets. Comparable figures for non-life insurance firms in Canada, England, Japan and the US were 66%, 51.6%, 41% and 18.4%, respectively.
Source: BusinessKorea
The Government Employees Pension Service (GEPS), KB Insurance and Hyundai Marine & Fire Insurance (Hyundai M&I) have expressed unease about the excessive use of leverage by private equity secondary funds, which they blamed for a capital call delay and cash yield decline.
They also showed concerns about bigger investment funds, questioning whether they can maintain their performance and stick to the original investment strategy, with KB Insurance leaning towards smaller-sized vehicles.
In evaluating private equity secondary funds, GEPS will look at the leverage factor, while Hyundai M&I will compare not only their target IRR but also target multiples in order to steer clear of fund houses heavily reliant on leverage, their senior investment officials said during a panel debate.
Source: Korean Investors
Korea Post and Kyobo Life Insurance both remain cautious about increasing exposure to hedge funds, citing a lack of transparency and communications of hedge funds, with key South Korean limited partners moving to a defensive stance for investment assets, senior investment officials said during a panel discussion in Seoul.
Their views oppose those of the National Pension Service (NPS) and Korea Investment Corporation (KIC). NPS is set to make its first direct investment in hedge funds by committing $2 billion to single-manager hedge funds, with KIC preparing to boost hedge fund investment again in three years.
Source: Korean Investors
JKL Partners, a local manager of private equity funds, may need to raise more capital from its investors for the acquisition of Lotte Insurance, according to industry sources. Otherwise, it will have to pursue a stake sale of the insurance company to raise capital after buying the insurer, they added.
This is because the new owner needs to increase Lotte Insurance's risk-based capital (RBC) ratio toward 200%, up from 163% at the end of March, according to the Financial Supervisory Service. This means JKL, Lotte Insurance's preferred bidder, would need at least W200 billion ($180 million) in additional capital to boost its RBC ratio to the suggested level.
The regulator requires that insurers keep their RBC ratios over 150%, and suggests over 200% for financial market stability.
Source: Korea Times
MALAYSIA
The Employees Provident Fund bought Sports Direct International's UK headquarters for £120 million ($152.82 million), according to unidentified sources familiar with the deal.
Billionaire Mike Ashley's Sports Direct said on May 17 that it was in advanced negotiations to sell the freehold rights to its property in the town of Shirebrook in central England, including a warehouse complex and distribution centre, to KWAA Logix Sportivo. EPF owns KWAA Logix Sportivo.
Source: Straits Times, The Sunday Times
INTERNATIONAL
Several US state pension schemes have reinvested in another of SC Capital Parters’ property strategies, helping the Singapore-based manager close its Real Estate Capital Asia Partners V (Recap V) fund at $850 million.
The institutions in question were San Francisco Employees’ Retirement System, Dallas Fort Worth Employees Retirement Fund and City of Phoenix Employees Retirement System.
The fund attracted investors from Asia Pacific, Europe and North America, including public and private pension funds, university endowments, asset managers, private foundations, family offices, insurance companies and funds of funds. Recap IV also closed at $850 million.
Source: IPE Real Assets
Pension funds for companies listed on the UK’s FTSE 100 cut their equity investments by around £30 billion ($38 billion) in 2018 as they continue to de-risk their portfolios, according to research by consultancy Lane Clark & Peacock. Stocks had accounted more than 60% of these schemes’ assets under management in 2002.
The move out of equities is a consequence of the widespread closure of old-style defined-benefit, or final salary, retirement schemes. With no new money coming in from staff savings, regulators have pressed companies to pay in billions to fix the schemes’ funding gaps.
Source: Financial News