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 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.
Asian institutions plan to in-source more
Not true. Some 37.5% of long-term Asian institutions said they would outsource more over the next 12 months, as against just 12.5% who said they would in-sourc more.
This may be a reflection of the fact that the largest institutions in Asia Pacific have already brought their core fixed income allocations in-house and are now looking to seek alpha in asset classes where they have little expertise, such as alternatives or more diverse areas of the fixed income market.
What this survey does not give some perspective on is the amount institutions are outsourcing as a percentage of overall AUM. We might conclude that the areas they are outsourcing to, and seeking alpha in, are not yet of a size and scale to make it worth them developing internal expertise.
Asian credit should become an interesting test case. When this region’s corporate credit markets eventually become more vibrant, liquid and therefore mainstream, it may be that Asian asset owners look to in-source that capability.
But for now that does not make sense; it is some way in the future. But this finding suggests the days of Asian institutions needing the help of international asset managers for core allocations to developed markets appear numbered.