Institutional investors are increasingly recognising the need to use more technology and data in order to improve returns, but are adopting different approaches over how to do so.
Nearly nine in 10 (87%) asset owners globally say they plan to use artificial intelligence and big data in the investment process within the next five years, found Allianz Global Investors’ (AGI) annual institutional investor survey, released earlier this month (see graph below).
And large, sophisticated Asia-Pacific Asian asset owners – such as Singapore’s GIC and Temasek, Malaysia’s Employees Provident Fund and Australia’s Future Fund – have been busy on this front, studying how best to use financial technology, investing into it and actively adding new personnel.
However, there is no single path to building such capabilities, in Asia or other parts of the world. For instance, two Western pension funds are adopting very different strategies as they attempt to build their fintech and data capabilities.
UK-based Coal Pension Trustees (CPT), which manages the £21 billion ($27.2 billion) in assets of the British legacy coal industry’s two retirement funds, is engaging fintech firms with a view to collecting and modelling data more effectively, to both improve how it invests and inform it on what to invest in.
Meanwhile, the Ontario Teachers’ Pension Plan (OTPP), a C$191 billion ($143 billion) Canadian public fund, announced this week it has set up a new department focused on investing in disruptive technology.
DRILLING INTO DATA
Mark Walker, CPT’s chief investment officer, told AsianInvestor the pension manager wants to collect, model, manipulate, project and use information to gain insights and make better decisions – and use technology to work more efficiently.
The key focus is on more efficient data management and better projections and modelling, especially around cash flows, without the inefficiency of spreadsheets, he said. “Better use of data will help us better manage our cash flows."
This is especially relevant for CPT, which has hit its allocation limit on illiquid investments (around half of its total assets). It cannot simply keep raising that exposure in the hunt for higher yields, as many other asset owners are able to do.
Like other institutional investors, CPT needs to make its assets work even harder these days amid the generally low fixed income return environment. This was one reason why it recently completed its most in-depth analysis of costs, which is helping to improve its investment decision-making.
Similarly, CPT plans to more extensively analyse its equity allocations, focusing on whether it can structure the portfolio to better target returns against risk. This exercise will include a broader assessment about how much it allocates to equities, and whether this fits with its preferred risk-return profile, said Walker.
He added that data is an important area to focus on for the coming decade or two. Data this is effectively collected and quantified “affects how we invest but it also informs what we invest in”, Walker said.
“All this data that’s been collected is now exponentially bigger than it used to be. How it gets monetised … will be a big part of future investments.”
CPT is talking to technology specialists about solutions for such issues, and may well spend more money to do so, Walker said.
It is relatively early days in these discussions with vendors, he noted, declining to specify how much CPT was spending or looking to spend.
PRIVATE EQUITY ROUTE
Ontario Teachers’ new investment department – Teachers’ Innovation Platform – is focusing more on investing in technology-related assets. It intends to focus on late-stage venture capital and growth equity investments in companies that use technology to disrupt incumbents and create new sectors, it said in a statement on Wednesday (April 24).
Heading the new department is Olivia Steedman, who previously led the fund’s infrastructure and natural resources group.
She highlighted areas of “unprecedented change” that offer particular investment opportunities, such as computing, materials science, robotics and medicine. Ontario Teachers, which is also eyeing a buildout of its Asian capabilities and exposire, feels this platform will help it achieve above-market returns from such sectors.
Ziad Hindo, chief investment officer at Ontario Teachers, said the platform would target assets anywhere in the world.
Moreove, it is set to invest “significant” capital but does not have a target allocation and will begin investing activity in 2019, a spokeswoman told AsianInvestor.
“We will be investing in equity, and may do so through funds, partnerships, platforms or directly,” she said.
OTPP does not disclose specific return targets, she added, but investing at an earlier stage in companies with strong growth potential leads to the possibility of higher returns.
The actions of CPT and CPPIB are far from unique. The AGI survey found that asset owners generally think the right technology can give them a competitive advantage. Nearly three-quarters of respondents (73%) expect to be using digital tools to tailor services for their beneficiaries, and the same proportion sees themselves using blockchain, the shared ledger technology that could transform the way financial transactions are implemented and registered.
Investors are likely to expect the same progress on the part of their fund managers, added the AGI report. They will need to do so, or risk losing out to newer fintech players.
*The AGI survey was based on interviews with 490 institutional investors worldwide with some $15 trillion in AUM, including insurers, public and private pension plans, sovereign wealth funds, family offices, foundations, endowments and banks. Europe accounted for 56% of respondents, Asia Pacific 24%, the US 14% and the Middle East 6%.
For more information on how asset owners and fund managers in Asia Pacific are approaching data management, look out for our coming webinar ‘Solving The Data Dilemma: Why are data management projects in Asia Pacific failing to deliver value?’
The webinar will be held on Wednesday 15 May at 2.00pm Hong Kong time. Click on this link for more information and to register to listen free of charge.
This article has been updated to include exclusive comment from an Ontario Teachers spokeswoman on its new investment platform.