Hong Kong conglomerate Jardine Matheson has appointed investment consultancy Willis Towers Watson as an outsourced chief investment officer (OCIO) for its pension assets, investment experts familiar with the arrangement have told AsianInvestor.
The holding company, which includes international brands such as hotel chain Mandarin Oriental, is understood to have appointed the OCIO in the second half of 2018 in a multi-asset management capacity, the experts said.
An OCIO is effectively an arrangement under which an organisation with assets appoints an external company to invest on its behalf. The arrangement can be focused on investing part of a portfolio into a particular asset class, such as alternative assets like private equity or real estate, or it can encompass an entire portfolio, including settlement and custody arrangements.
Jardine Matheson’s discussions over appointing an OCIO are understood to have taken place over more than a year, while Craig Beattie was still the group's treasurer. Beattie moved to become the chief financial officer of Mandarin Oriental in November. When contacted, he declined to comment about the appointment of an OCIO.
The exact amount of current pension assets that Jardine Matheson currently has could not be ascertained. However, in its latest half-year financial report the conglomerate reported that it had $382 million in pension liabilities as of June 30, 2018, down from $443 million a year before.
A spokeswoman for Jardine Matheson did not respond to AsianInvestor's questions about the appointment of Willis Towers Watson as its OCIO. Will Rainey, head of investment strategy for Asia at Willis Towers Watson, declined to comment on its appointment.
OTHERS TO COME
The decision by Jardine Matheson to appoint an OCIO comes amid a nascent but increasing level of interest for the concept among smaller asset owners in Asia.
On December 10, AsianInvestor revealed that Singapore’s Ministry of Home Affairs was set to launch a request for proposal for an external investment organisation to oversee the bulk of its pension assets. Organisations including Willis Towers Watson, Mercer and others are believed to be among those interested.
Others are also likely, including smaller asset owners in Korea and in China, as more multi-asset retirement options are actively promoted. To date the main sticking point preventing more take-up is the fact that they are such a new concept, say consultants.
“The most typical sticking point I hear from asset owners is ‘not enough of our peers are doing it’,” Adeline Tan, wealth business leader for Hong Kong at Mercer, said. “Clients are interested in exactly what an OCIO or delegated solution can deliver but [are] concerned about the risk of being among the first to employ it.”
OCIOs have been increasingly popular as a concept in Europe and the US, particularly among corporate pension funds and endowments. The Thinking Ahead Institute, a unit of Willis Towers Watson, published a survey in November of the 100 largest asset owners in the world, which noted that OCIOs and master trusts represent 7.2% of the combined assets of these investors.
The OCIO structure appeals to asset owners with relatively small pools of investable funds – typically under $20 billion. They, typically, lack the budgets to employ full-time investment teams with expertise across multiple asset classes. This often means that they invest assets in a relatively conservative manner that might not best meet the long-term needs of their employees.
Investment consultants like Willis Towers Watson and Mercer have extolled the OCIO concept, arguing that it is asset-agnostic and ideally suited for addressing the needs of investors. They have, naturally, also argued that their roles as independent advisers make them excellent stewards of assets compared with fund managers that put forward their own investment vehicles.
The consultants claim that their services allow smaller asset owners access to assets they would struggle to access by themselves, particularly private equity, infrastructure and real estate. The consultants use the heft of their combined assets under management to invest into specialist funds, giving their clients greater asset diversity.
In addition, “it can be beneficial for an asset owner to do away with lots of separate investment managers and not to have to try and resource an investment operation or dealing with custodians,” Tan said.
CONFLICTS OF INTEREST
Investment consultants are increasingly keen to push the OCIO concept in Asia for their own reasons as they have struggled to make money in the region through just investment advisory work. That's mainly because Asian asset owners are often reluctant to pay for external asset allocation advice or only look to employ consultants on an ad hoc basis for specific mandate plans.
The consultants’ desire to act as both consultants and outsourced investors has led some fund houses to warn of a conflict of interests. However, as one senior finance official at a multinational corporation warned, fund houses have their own competing interests in pushing the idea.
“Many fund managers that come and talk about fund manager OCIOs basically just want to use them as a mechanism to sell their funds,” he said. “If you appoint a fund manager and invest all your pension plans into their funds, you might be diversified but you still end up having huge provider risk.”
This story was partially adapted from a feature on the growth of OCIOs in Asia in AsianInvestor December 2018/January 2019 magazine.