SPEAKERS

  • Benjamin Deng, Group Chief Investment Officer, China Pacific Insurance Group (CPIC)
  • Daniel Oh, Director, Real Estate Investment, Korea Investment Corporation (KIC)
  • Tatsuo Ichikawa, Managing Director, Head of Quant Team, Investment Division, Japan Post Bank
  • Deborah Bannon, Head of Institutional Distribution APAC Ex Japan and Consultant Relations APAC, BNY Mellon Investment Management

DISCUSSION HIGHLIGHTS

Adapting portfolios in the ‘new normal’ –

  • The market turmoil caused by the pandemic has highlighted the importance of diversifying portfolio risks across a range of alpha sources. This includes diversification in terms of strategy as well as in relation to risk factors.
  • Investors should be monitoring both the risk and geographical concentration of asset classes in investment portfolios.
  • A growing number of asset owners are not only reviewing their longer-term strategic allocations, but also how they make shorter-term tactical decisions.
  • Focusing on uncorrelated returns is the most practical and realistic route to portfolio diversification in today’s environment.

Finding alternative sources of alpha –

  • There is growing appetite among asset owners for various alternative investments and private market assets, including private equity, private debt, real estate and infrastructure.
  • CPIC has also been investing in longer-dated Chinese government bonds to seek better investment returns and lengthen portfolio duration.
  • ESG factors are one of several attributes that long-term investors analyse when creating a future-proof portfolio. In cases where a target stock has growth prospects but the company might have a low ESG score at the moment, asset owners are looking to engage external managers to potentially have a conversation with the company’s management, for example to help it improve its ESG performance.

A closer look at the role of external managers –

  • Asset owners are expecting more from their managers in today’s environment. From the level of engagement and speed of responsiveness, to transparency and knowledge sharing, any extra value-add is important as a way to enhance the overall relationship.
  • Investment managers have different styles for generating alpha. For example, for public equities, some investors focus on value, or fundamentally strong companies, while others prioritise growth strategies.
  • Asset owners typically analyse each manager’s underlying strategy and holdings, and assess how they have changed overtime.
  • One of the best practices in managing outsourced portfolios is to find the true role for external fund management and how best to utilise external alpha sources.


KEY INSIGHTS

On evolving approaches to diversification…

 

Daniel Oh, Korea Investment Corporation
“We see some tilting by a few managers towards certain risk factors. We are ready to balance them out during the next rebalancing period.”

 

Tatsuo Ichikawa, Japan Post Bank
“Portfolios can be better managed when investors use risk factors rather than just tracking exposure and investment volumes…. In more challenging market environments, it is important to monitor concentration levels within each asset class, both by sectors and regions, using factor-based risk analysis.”

Deborah Bannon, BNY Mellon Investment Management
“There is also now a lot more emphasis by investors on the societal issues that have been highlighted by the impact of the pandemic.”


On finding new ways to meet return objectives…

 

Benjamin Deng, China Pacific Insurance Group
"The private equity market is going to experience a positive cycle over the next 10 years. We intend to structurally add more private equity to our portfolio and build more capability and capacity [internally]…. In addition, a booming IPO market gives investors more confidence in private equity as it is a popular way for an investor to exit their investments.”

 

Tatsuo Ichikawa, Japan Post Bank
“Most Japanese asset owners have large exposure to fixed income to control interest rate risk. The low rates give us a headache, creating less room to take any risk in the rest of the portfolio. The only realistic solution has been to try to diversify as much as possible, especially into alternatives.”

Daniel Oh, Korea Investment Corporation
“While we are serious about ESG factors, at the same time we are a longer-term investor, so we try to be a bit flexible and cautious about the overall score.”


On key criteria for outsourcing to external asset managers…

 

Deborah Bannon, BNY Mellon Investment Management
“Asset owners are unable to conduct onsite due diligence with investment managers. To manage this, some are accessing the on-the-ground resources of those investment consultants located close to investment managers to which the investor is looking to allocate, to help with the due diligence process.”

Daniel Oh, Korea Investment Corporation
“KIC looks not just at investment performance but also at the types of risk factors adopted by the fund managers we outsource to. In addition, we consider whether the return performance matches the intended risk exposure in the [manager’s] track record.”

Benjamin Deng, China Pacific Insurance Group
“In this new paradigm, active management matters. We will outsource mandates and pay a lot of attention to qualities of external managers such as their capabilities in areas such as securities selection, credit risk assessment and risk hedging.”

Deborah Bannon, BNY Mellon Investment Management
“Some asset owners are now looking for a smaller number of relationships but with larger, global providers which can offer them solution-focused outcomes.”