Major asset owners across the Asia Pacific will be pouring their money into global destinations over the next five years as they seek higher yields through diversification, according to a new report.
Fintech company Broadridge’s Apac Institutional Client Opportunities 1H 2021 report released on Thursday (May 27) stated that the regional asset pool for outsourced overseas investment is set to be enlarged by 58% to reach $9.3 trillion by 2025, a growth rate of 9.6% per annum.
With these assets ballooning, outsourced investment in Apac is also set to grow - at a slightly slower pace - by 9% per annum to hit $18.5 trillion by 2025, according.
The report’s forecasts are based on the investment data of sovereign wealth funds, pension funds, insurers, official institutions and other large asset owners across 12 major Apac markets. This includes Australia, Greater China, Japan, Singapore, Korea and other Southeast Asian countries
ASIA'S ASSET TRIUMVIRATE
The report found that asset owners in Japan, Korea, and China were driving Apac's exposure to foreign investment. Japan alone accounts for 50% of outsourced international assets, the report said.
For instance, the world’s largest pension pot, Japan’s Government Pensions Investment Fund (GPIF), had invested $450 billion in foreign bonds as of December 2020, both outsourced and in-house, up from $350 billion in March 2020.
Similarly, outsourced foreign fixed-income assets of Korea’s National Pension Service (NPS) jumped by 32% year-on-year to hit $22 billion by the end of 2020, Broadridge said in the report, without providing a breakdown on asset types.
GPIF managed 177.7 trillion yen ($1.63 trillion) worth of assets as of the end of December. Foreign bond holdings reached a record high of 25.71% of GPIF’s assets under management in the October-December quarter, as Japan’s prolonged period of low-interest rates pushed the fund to shift its portfolio away from unprofitable domestic bonds towards higher-yielding foreign assets.
NPS, meanwhile, plans to raise allocation to overseas assets to 55% by 2025 from current 37.5% of its total W860 trillion ($770 billion) AUM. Meanwhile, Korea Investment Corporation is scaling up investments in new technologies, with its new office in San Francisco and co-investment agreement with Hyundai Heavy Industries, noted Evonne Gan, Broadridge’s associate director of Apac Insights.
EYE FOR QUALITY
For other Korean institutional investors, Gan told AsianInvestor that she is seeing increasing interest in foreign bonds, private debt, and infrastructure debt, with an emphasis on quality, low risk and regular income.
In China, Broadridge estimated that outsourced international assets are expected to grow at 11% p.a. over the next five years, without giving a specific value of assets.
The share of China’s international addressable assets – which refers to assets that are outsourced to external managers and invested outside of Apac - is expected to stay at around 20% of total addressable assets, significantly lower than the average of other Apac markets at approximately 60%.
Gan said: “Nevertheless, the sheer size of the Chinese market will still translate to sizeable revenue potential for fund managers, especially after regulators eased outbound investment limits further in 2020.”
These include offshore investment expansion from China’s largest institutional investors as well as the regular release of new Qualified Domestic Institutional Investor (QDII) quotas, she added.
She noted that China Investment Corporation (CIC), National Social Security Fund (NSSF), and leading domestic insurers, have been expanding their offshore investments in recent years. She didn’t provide further details, saying that their report in the second half would provide greater depth.
In Singapore, managers will continue to expand offerings in the alternatives sector, with private equity, private debt and infrastructure appearing on asset owners’ radars. Broadridge expects those fund managers to gain more revenue from alternative strategies than those from equity and bond strategies over the next five years.
Meanwhile, asset owners in Australia showed strong interest in insurance-linked strategies, real estate and natural resources, often with a sustainable overlay, Gan told AsianInvestor. There is also demand for higher-yielding debt instruments in areas like Asia and other emerging markets, she said.