Private credit might be less attractive than it was last year as investors rush into the market, but there are sweet spots to be found.
ôThere are three problems in China: a big, unfunded legacy pension, the overhang of non-tradable shares and corporate governance issues,ö Pozen says. ôYou know the expression, to kill two birds with one stone? Well IÆve got a stone that can kill all three.ö
He notes that the Chinese government has already implemented a policy of requiring 10% of proceeds from foreign initial public offerings to go to the Rmb201 billion ($25.1 billion) SSF. ôThey havenÆt done this domestically because of the overhang issue,ö Pozen says. ôWhy not allocate shares instead of cash? Put in a restriction so these shares couldnÆt trade for a long time, maybe 15 or 20 years, and that would get rid of the overhang.ö
Moreover this would encourage the SSF to grow into a long-term institutional investors, and encourage it to work to improve corporate governance among listed SOEs. The long-term increase in asset values would help the SSF finance the countryÆs legacy pension needs.
When asked about the existing reform program in China that has seen about two-thirds of listed SOEs transformed into æG sharesÆ, with state-owned shares designated as open to strategic investors and minorities compensated with free shares, Pozen replies that it wonÆt provide enough certainty. The nature of the timing of any such sales remains unknown; nor is it clear whether a strategic investor could then flip the asset. It could also foster many small investors rather than a few big anchor institutions, he adds.
He thinks the country is better served by moving these blocs of assets not to strategic investors, but to the SSF, with an explicit lock-up period.
MFS, the oldest mutual funds company in the United States, manages $162 billion. It has offices in Sydney, Tokyo and Singapore, as well as a presence in Hong Kong through its parent, Sun Life Insurance, and a funds joint venture in India, Birla Sun Life Mutual Funds. Its main businesses in Asia are marketing to institutional investors, and distributing fund products through wholesale channels, and it sources a total of $7 billion from the Asia-Pacific region.
Pozen says he wants to see the firm build up its presence as a fixed-income manager in Asia, noting that in the US, about one-third of its domestically sourced assets are for fixed-income mandates. ôOur goal, outside of Hong Kong where we donÆt see much demand for this, is to develop our global fixed-income products for local investors.ö
Regulators keep their eyes open on tightening insurance industry by introducing more detailed risk management requirements, which could bring pressure on smaller players.
China and India are more obvious choices for AustralianSuper to consider in Asia Pacific, but the super fund currently lacks the expertise and prefers to stick to the US and Europe.
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Investors are increasingly turning to private companies and private debt in their hunt for ESG alpha, but the age-old problem of transparency and due diligence remains