AsianInvestor’s annual survey of the largest institutional investors across Asia Pacific showcased strong appetite for exposure to global markets and alternative assets as well as an appreciation of active over passive investing.
It emerged respondents are as happy to invest directly and to co-invest with general partners and peers as they are to take a fund-of-funds approach, and they are ready to outsource more to external parties.
Further, they have had to reset their macro-economic assumptions as they face up to China’s growing economic influence. All of this is having a big impact on how they are constructing portfolios.
These were some of the conclusions that AsianInvestor has drawn from our annual survey based on our AI300 ranking (published in our July magazine).
Our survey, sponsored by Goldman Sachs Asset Management, received 100 responses from 95 institutions across 15 jurisdictions including central banks, sovereign wealth funds, pension funds, insurance firms, commercial banks and official institutions. For certain questions, asset owners were given the option to rank their responses in order of importance.
This year commercial banks made up a greater proportion of our respondents (34%) than in previous years. To ensure we created an accurate picture of how Asia’s long-term-focused institutions were allocating money, and to avoid a conservative distortion created by the predominance of liquidity providers, we present two sets of results: one including commercial banks (ALL) and one excluding them (non-banks). This also enables us to see how banks behave differently.
Based on our survey findings, we sought to dispel 10 myths about Asian asset owners, facts that market observers may have thought they knew about the region’s most sophisticated investor base.
Volatility is causing asset owners to de-risk
Not true. Our survey was conducted between July 30 and September 4, meaning it encompassed this summer’s volatility. It shows that, far from de-risking, Asian institutions have a strong preference to ramp up risk, with 69% of long-term asset owners planning to raise exposure to international markets, 42% to increase alternatives (ex-real assets) and 39% to expand in real assets.
It was noticeable that banks were slightly less aggressive, although bullish nonetheless. Long-term institutions were also more commonly looking to reduce fixed income exposure and were less likely to increase it than banks.
When you look purely at respondents’ plans for international allocation, banks again were more positive on increasing fixed income exposure (41.7%, versus 30.6% for long-term institutions). This could indicate that banks are striving to move more into asset-backed securities and unconstrained bond strategies.
But across the board there was no dramatic change between respondents increasing, decreasing or remaining the same in fixed income, with the range between 25-40%. What this suggests is a rotation within their bond portfolios in an effort to try to squeeze what returns they can out of fixed income.
In terms of which risks they see growing in importance over the next 12 months, the leading answer with 56.7% was investment, followed by governance (21.7%). This supports the theme that institutions are most focused on increasing exposure to risk assets.
It is perhaps recognition of the new financial landscape that is forcing Asian long-term capital to look through short-term volatility to take advantage of a diverse set of opportunities.
“They are having to open their minds to different types of investment than they have before, because that is where the yield is,” says Sheila Patel, chief executive of international at Goldman Sachs Asset Management.