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 the past. To ensure we create 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.
Asian institutions are targeting RMB
Not true. Still 35% of Asia’s largest asset owners have no renminbi exposure and one in five have no plans to increase their existing allocation to the currency. If anything, it was a premature call to say they were.
In fact, our survey shows that banks are the biggest source of demand for RMB, though that is not to say that other Asian institutions are not interested in accessing China.
Their answers suggest they take a scattergun approach relative to the opportunities available. It is telling that the avenues they most favour are either not ready (Bond Connect) or extremely limited (the mutual recognition scheme).
“The combination of these two things, which really don’t exist in any filled-out way, implies they are looking for something else,” observes Karl Wianecki, chief operating officer for Asia at Goldman Sachs Asset Management.
Still, it suggests institutions recognise they can’t insulate themselves from China due to its economic influence. Even the US Federal Reserve mentioned RMB devaluation in its decision to hold rates in September.
China has become a more significant factor in asset owners’ thinking, and they are having to adjust their macro framework before considering portfolio allocation.