The hunt for non-traditional yield, protection from inflation and diversification of returns is shaping how asset owners in Asia Pacific now view and make portfolio decisions.
A particularly acute challenge stems from a combination of historically low interest rates and the inflationary environment. Together, these make it increasingly difficult to match long-term liabilities. In parallel, investors are trying to re-align portfolios that have suffered from an enduring under-allocation to alternatives. Asset owners also have to contend with heightened geopolitical risks as an overarching consideration in their longer-term outlook.
Despite these headwinds, their investment goals broadly remain unchanged. “Asset owners have return profiles to achieve and liabilities to match, so they are pursuing the same strategic portfolio objectives,” said Simon England-Brammer, head of EMEA and APAC institutional at Nuveen.
What’s different, however, is the greater level of sophistication emerging in terms of approaches to asset allocation and risk management.
“There is a better understanding overall among asset owners across the region about the requirement for more diversification and how to tackle the risks they face,” added England-Brammer.
As a result, investors have been adopting a range of approaches – from boosting allocations to alternatives, to ensuring environmental, social and governance (ESG) factors are central to the investment process.
Perhaps most notably, the theme of sustainability is all-pervasive. It increasingly cuts across all decisions as asset owners, globally, re-examine their capabilities, resources and strategies as their agendas respond to the complexity and demands they now face.
For example, a report released in July 2021 by the Global Sustainable Investment Alliance showed that sustainable investments total $35.3 trillion, or more than a third of all assets, in five of the world's biggest markets – the US, Europe, Australasia, Japan and Canada. This was a rise of 15% in total assets since the previous report from this biennial industry survey1.
Sustainable investing assets by strategy & region 2020
Alongside ESG considerations, responsible investing has risen in prominence in many markets. In turn, asset owners are grappling with how to adapt governance and investment structures to keep up with expected demands from regulation and reporting initiatives.
This requires more than just a tick-box exercise as part of due diligence. “We want to see more frequent examples in Asia Pacific of dedicated capital flowing to sustainable and impact investments, and being deployed to capture the underlying theme,” said England-Brammer.
Catalyst for change
As asset owners pivot to meet tomorrow’s investment objectives, achieving net-zero targets and ensuring real-world impact is front-of-mind.
From Nuveen’s perspective, companies that proactively and strategically plan for climate risk will be better equipped to manage and support the transition to a low-carbon economy.
“We actively engage with companies on climate risk management and supporting shareholder climate proposals that drive measurable improvements,” said England-Brammer. “In the shift towards decarbonisation, we use our influence to seek change in sectors including energy, infrastructure, agriculture, timberland and real estate to benefit a shift to a lower-carbon economy.”
This is based on three key initiatives: firstly, the Climate Risk Task Force, a cross-functional team bridging the Teachers Insurance and Annuity Association of America (TIAA) and Nuveen, with oversight of the firm’s responsible investing programme and activities; secondly, climate risk training for investment professionals as of December 2020, focusing on how and where climate change may impact investment portfolios; and thirdly, integrating climate value at risk and carbon emissions data into the investment process.
The dominant focus for Asia Pacific investors is to increase ESG and responsible investing to drive returns, explained England-Brammer. “This requires engagement across the spectrum of stakeholders, including tenants, portfolio companies and shareholders, meeting and collaborating with industry peers.”
In 2019 and 2020, for instance, Nuveen engaged 800 times across 598 companies. It found climate and diversity issues at the top of the industry’s agenda.
Investing with impact
In line with this, asset owners in the region are seeking impact from these investments, with tangible outcomes to show for their capital.
This starts with identifying private companies with the potential to drive significant progress against particular UN Sustainable Development Goals.
It also relies on effective impact measurement. “Throughout 2021 we have put an additional emphasis on this by designing bespoke frameworks across asset classes to provide clients with a clear overview of impact from their investment,” added England-Brammer.
This is based on an entrenched mindset from five decades of responsible investing, the firm’s commitment to the UNPRI2 and its $42.8 billion3 in ESG and impact strategies.
A patient approach to deploying capital
Being the investment management arm of TIAA, Nuveen looks at today’s new investment reality through a different lens.
In particular, the manager has a long-term view that deflects market noise. This aligns with it being privately held, in turn offering the financial stability that breeds comfort to ensure the firm stays focused on investors’ long-term results, not quarterly earnings.
Size also counts. With $1.2 trillion in AUM, the priority is to forge partnerships with asset owners. “We take more of a consultative approach with our clients, and can offer them benefits that come from both our own experiences from investing in the same assets, as well as from our scale,” explained England-Brammer.
The track record comes from a wide-ranging history in how it works with clients: as a retirement income provider, an alternatives manager and also a pioneer in responsible investing.
In short, the firm can take a like-minded stance. “We have ‘skin in the game’, as a result of owning a broad array of independent investment specialists.”
Click here to explore Nuveen’s history of responsible investing and how we embed ESG factors into a broad array of investment strategies.
Responsible investing incorporates Environmental Social Governance (ESG) factors that may affect exposure to issuers, sectors, industries, limiting the type and number of investment opportunities available, which could result in excluding investments that perform well.
1 - http://www.gsi-alliance.org/
2 - TIAA investments/affiliate level signatory from 2009, shifted to firm level signatory from 2020.
3 - As of 6/30/2021.