Responsible investing includes allocating to poor-ESG performing EM countries and helping them shift to greener solutions, instead of divesting completely, experts said.
The asset owner of 2030 will in many respects be similar to one today. But each one will face a few of the same challenges, namely how much to invest with internal teams, versus outsourcing, and how much to spend on inhouse technology.
Many Asian asset owners have kept a hand in local markets investing, while handing out more complicated areas (offshore equities and bonds, alternative assets) to external players. But larger asset owners, such as some superannuation funds, sovereign wealth funds and central banks, are investing more in-house.
The question other players face is whether to follow suit and accept the increased internal resourcing costs that it will require.
There is no easy answer, but it will likely depend on size. Bigger institutions (those with $100 billion or more in assets) have the economies of scale to build internal investment teams.
Smaller ones (especially corporate pensions or endowments with $20 billion or less) will likely look to use outsourced chief investment officers (OCIOs), supplied by consultants like Mercer and Willis Towers Watson, and major fund managers like BlackRock and State Street.
AIA’s head of investment solutions Trevor Persaud believes the industry over 10 years will also see this OCIO or investment consultancy role being increasingly absorbed by asset managers. Meanwhile asset owners may well discover a bigger need for more global research perspectives.
“I think the natural home of the best macro economists and macro strategists is with asset owners, where these decisions are made,” he said. “And then external asset managers can add value and help set and define the investment objectives.”
Another area of likely increased internal investment is data training and analysis. The advent of data and technology will become more important as asset owners seek new means to evaluate how company assets perform.
Much of this work will be possible through external experts, but asset owners will have to improve internal technological capabilities too – to assess what external providers can do and better analyse the data they are accumulating.
That means more data scientists and more IT experts. “Better tools will be needed to compare, advanced quantitative research and analytic programmes and software to make the right decisions,” said Jang Dong-hun, chief investment officer of Korean pension fund Public Officials Benefit Association.
“How will that make investment teams look different? We will need to hire more statistical or computer experts, to improve our AI machine learning capacity,” said Jang.
Of course, just as with more in-house research or investing, asset owners will have to spend more money to hire internal data teams. That will require them to make a good case for why it’s worth making these expensive investments over the long term.
Perhaps the integral requirement of asset owners over the coming decade is the right organisational and governance structures.
All structural shifts flow from the plans that the organisations initially lay out, so it’s vital to have a proper system to make those choices.
Tim Mitchell, global head of governance at Willis Towers Watson and a former strategic adviser at New Zealand Super, believes that asset owners over the coming 10 years will better understand how important it is to put proper decision-making and oversight in place to ensure consistent investment planning. This includes having a strong and independent-minded investment board.
“Good governance 101 is to create beliefs, but many don’t really think about this and or how it impacts their thinking,” Mitchell told AsianInvestor. “A good board can challenge an organisation and ask how investment decisions work with this thinking.”
The other unvarying requirement is the need for good people. “It’s cliched but it’s important for us as a small organisation to get people who are curious, capable and keen to sign up to our purpose,” said Matt Whineray, chief executive officer of NZ Super.
The coming decade will throw up new challenges, but the basics of being a good asset owner will remain. They need to define what they want, agree on a process to achieve it, review their decisions how to get there, and gain the best tools to achieve those goals.
But the way they do so could change a lot. The asset owner of 2030 may do its work very differently from one today.
This story was adapted from a feature on megatrends affecting asset owners in the coming decade, which was the cover story for the 20th anniversary edition of AsianInvestor, published in late June.
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