Asian institutional investors completed 70% fewer asset manager searches via consultancy Mercer last year than in 2011, resulting in a drop in total value to $2 billion from $5.9 billion. This represents the lowest annual search activity in the region for over a decade, by both number and value.
The Asia figures bucked the global trend, with 776 searches completed worldwide in 2012, up from 742 the previous year. Total value fell, however, to $53 billion from $78.2 billion. The most popular search categories included global/international equity, global fixed income, Japan equity and emerging market debt.
Most of the searches in Asia in 2012 occurred in Japan and Hong Kong, but both markets still saw falls in volume. Search activity was relatively low as a result of market uncertainty, clients focused on strategic asset allocation review and manager review rather than manager search activity, says Mercer.
There were additional reasons for the decline in Japan, notes the investment consultancy. One was the negative impact caused by the AIJ scandal, a Ponzi-type scheme uncovered in February 2012. Another was corporate Japan’s focus on expense control, which led to investors deferring portfolio reviews.
With regard to Asean, “the slew of negative news from developed markets and the slowing emerging economies made investors reluctant to commit new funds, so search levels were relatively low”, says Garry Hawker, director of consulting for growth markets at Mercer in Singapore.
Meanwhile, New Zealand saw an almost 400% increase in the number of searches to 41 (the highest since 2007) from 11, while in Australia the number rose to 111 from 100. But the total value of Australian searches fell by around two-thirds, to $6.8 billion from $19.7 billion, while the value of New Zealand searches more than doubled to $0.5 billion from $0.2 billion.
Australia saw increased interest in searches for Australian fixed income, infrastructure and global fixed income. In New Zealand, infrastructure, New Zealand fixed income and natural resources were particularly popular.
In terms of asset classes, emerging market exposure roughly doubled in global popularity last year, with $4.089 billion of EM equity assets placed (7.7% of the global total), up from $2.188 billion in 2011 (2.8%). And $3.877 billion of EM debt was placed (7.3% of the total), up from $1.289 billion (1.6%).
The number of global/international equity searches done by Mercer fell around a fifth to 79 from 103. But this remained the most popular category, representing 10.2% of the total number. It was also by far the most popular category by value, rising to $12.593 billion (23.8% of the global total), from $9.745 billion (12.5%) in 2011.
As for global fixed income, Hawker says there’s been some consideration of alternative indices rather than the usual market-cap-weighted benchmarks. “We’re seeing clients starting to look at alternative ways of structuring fixed income portfolios. But there hasn’t been the same take-up of fundamentally or GDP-weighted as market-cap-weighted portfolios, and this activity has mainly tended to be outside Asia.”
On the equity side, Hawker points to one interesting trend last year being large international institutions asking for help finding managers for their qualified foreign institutional investor quotas, which allow investors to buy Chinese onshore securities. These searches tended to be for A-shares rather than bonds, he says.