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 that 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 their 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. On 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 the past. To ensure we created an accurate picture of how Asia’s long-term 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, but didn’t.
Passive is growing in appeal
Not true. Asked how they planned to apportion their portfolios, almost one in three long-term Asian asset owners said they would decrease traditional passive exposures (31%), with smart beta considered a favourable option (40%).
In these post-2008 crisis years of quantitative easing and suppressed volatility, correlations have remained relatively high, meaning less reward for active investors.
However, as volatility has picked up and institutions have grown comfortable with a more complex asset allocation, their capability to invest actively has gone up correspondingly.
This was a discussion topic at the Milken Institute’s Asia summit in Singapore last month, said Sheila Patel, chief executive of international at Goldman Sachs Asset Management.
Hiromichi Mizuno of Japan’s Government Pension Investment Fund reportedly suggested that overuse of passive investment had undermined the efficient allocation of capital towards businesses that would drive global growth.
It is incumbent on many of the asset owners in our AI300 to drive development in their domestic capital markets, and passive investing is no way to go about it.
Asked what they viewed smart beta as an alternative to, the responses were evenly split, with 27% of non-banks saying ‘active management’ and 24% saying 'traditional indices/passive’. Banks gave very similar answers.
A quarter of long-term institutions said they did not use smart beta but planned to do so, while 22% said they did not use smart beta and had no plans to. The results were similar for banks, with 21% saying they did not use smart beta but plan to, and 25% saying they do not use smart beta, nor have plans to.