Private credit might be less attractive than it was last year as investors rush into the market, but there are sweet spots to be found.
Institutional investors, despite their huge assets under management and weight in capital markets, are as a rule inept at influencing regulation or driving agendas in global finance. They are constantly outmanoeuvred by financial intermediaries and by the management of the companies they own. Even the most sophisticated buy-side investors are relatively passive institutions.
A gathering of Asian and North American public pension funds held in Japan last week showed the potential of the buy-side to use its clout, but also highlighted the need for their officials to become more assertive.
At the annual Asia-based meeting of the Pacific Pension Institute, an international grouping of public pension funds, investors were urged to come up with a list of proposals to be submitted to influential people at the US Treasury by one of the PPIÆs better-connected American members.
The idea is to give institutional investors a voice at the meeting of leaders of the Group of 20, to be hosted by US President George Bush in Washington on November 15. The meeting is intended to air suggestions on repairing global financial architecture in the wake of the credit crisis.
Investors at the PPI meeting in Kyoto were urged to come up with an initial list of recommendations, which will be refined over the coming days.
This generated a long list of ideas from the American and Asian delegates intended to ensure any reforms serve the buy-side, not intermediaries. Some of these ideas include:
Giving institutional investors real power in determining members of corporate boards, in particular, changing the US Securities and Exchange CommissionÆs rules so that investorsÆ votes on company boards are binding. To date, institutionsÆ votes on matters such as securing or ejecting independent directors, or in areas such as corporate remuneration, are merely advisory;
Introducing transparency in the pricing of cash and bonds, and transparency in the relationship among financial service providers, in order to shed light on the æshadow banking systemÆ;
Limit the creation of capital through leverage, with standardised regulation for banks, insurers, pension funds, hedge funds and other actors;
Consider a return to Glass-Steagall-like legislation, because financial service companies have become too big and complex for their own good.
In addition, some institutional investors recognised that they are more likely to be influential by becoming more assertive in the matter of corporate governance (particularly when they own shares in financial institutions) than via lobbying governments.
Although Asian pension funds took part in the discussion, there was a clear division of opinion about the use of international collaboration to push the buy-side agenda. Many Japanese pension fund executives were wary of the American zest for banding together, fearing their US colleagues were trying to impose an American solution on them.
The conference revealed a desire among many Japanese funds to shift gears, away from viewing corporate governance as just a campaign for shareholders.
And some Asian speakers said the world had to wait for the US to sort out its mess and establish leadership. These people argued the US remained the worldÆs leading role model, and decisive moves to reform financial regulation by Washington would be followed by the likes of China.
But some Americans argued against their Asian counterpartsÆ apparent desire to be left out of any effort to send a list of buy-side proposals to the G20. ôThe US needs Asian input,ö says one US representative. ôOtherwise it feeds US arrogance. It is important for the United States to listen to others as it formulates its foreign and economic policy, versus making a decision and imposing it on others.ö
The PPI welcomes suggestions from Asian institutional investors. If you would like to contribute a policy goal or proposal, please email PPI CEO Marsha Vande Berg at [email protected] Contributions can be either for attribution on behalf of an individual or an organisation, or not for attribution.
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