There is definite proof that sustainability-focused funds are outperforming their conventional counterparts. But some experts believe the traditional explanations for this are wrong.
ôThe demand we sense from Asian institutions is for income-based investments,ö he says, ôprimarily in fixed income and real estate. Investors in markets such as Japan and China want clarity in their sources of income. ThereÆs a lot of change going on in global credit markets, especially in structured finance.ö
Like many fund managers in the United States, Principal has developed expertise in managing collateral as American banks and other financial institutions securitise various assets to get them off the balance sheet.
But while most of these fund managers have since developed this business in Europe as well, Principal is aiming to develop this business in Asia. Its Singapore-based investment managers are building portfolios of securitised assets sold by regional financial institutions, which can be commingled and split into tranches of varying risk that a partner investment bank can sell.
ôA high-yield and leveraged-loan market has begun in East Asia,ö Mccaughan says. ôItÆs still small compared to the US but it will accelerate.ö
The firm is best known in America for managing defined-contribution 401(k) plans, but since 1999 it has developed the capability to run accounts for big institutions, and now claims to manage money for 10 of the top 25 largest pension funds in the US.
It has a retail presence in Asia, including Hong Kong (including an MPF business), Maalaysia through a joint venture with CIMB, and China through a joint venture in funds with China Construction Bank. But two years ago it began developing an institutional team to develop business among AsiaÆs large pension funds and central banks, led now by Kirk West, managing director in Singapore.
The firm realises the competition is fierce and it has to prove itself, but it hopes to win over Asian investors through innovation and developing products to suit local needs, rather than try to export its US model.
The firm says it now competes successfully for business from Australian superannuation funds and other investors. It has developed an Aussie dollar-denominated global income fund that invests in high yield, asset-backed and mortgage-backed securities and preferred securities. It hedges out longer durations and aims to return 2-3% over cash with low volatility. The firm has also introduced global real-estate funds to that market which it says have sold well. Principal hopes to develop this sort of product for East Asian investors too.
Mccaughan says investors still get good value from fixed income. ôI donÆt think thereÆs a bubble in the fixed-income markets,ö he says, arguing that compressed yields are a function of excess liquidity, excess savings, and the demise of inflation thanks to global competition. He notes that spreads of 4-5% seem low today only in comparison to the late 1990s and early 2000s, but this period was an anomaly catalysed by the collapse of Long-Term Capital Management. ôSo must find out where you can get higher spreads,ö he says, adding the firm is a big player in AmericaÆs small but high-yielding preferred-securities market.
Investors can still find spread premiums in niche private debt, with the asset class's prognosis looking strong, said a keynote speaker at AsianInvestor’s latest summit on Wednesday.
AsianInvestor details the second part of our marquee award winners for 2021, which includes the standout ESG adviser and also the asset manager of the year.
AsianInvestor reveals the first half of our marquee winners for this year's Asset Management awards, including best asset service provider and top alternative fund houses.
The number of millionaires in mainland China grew by 35% in 2020, while the number of millionaires in Hong Kong fell by 7%, according to a new report from the private bank.