Facing stagnating growth in Asia, regional institutional investors with a combined $1.2 trillion under management are putting a strong focus on private equity and environmental, social and governance (ESG) factors amid the Covid-19 turbulence, according to AsianInvestor’s latest Quarterly Sentiment Indicator.

From insurance companies and pension funds to sovereign wealth funds and endowments, Asia-based asset owners polled between late May and early June are mostly looking for as steady and as reliable a portfolio as is realistic to expect amid such wild market swings and unpredictability. 

BLEAK OUTLOOK

Expectations for GDP growth for the rest of 2020 in Asia reflected continued macro uncertainty, even as many parts of the region look towards the first stages of economic recovery after the shutdowns.

Only 31% predicted Asia growth of above 1%; another third forecast between 0% and 1%. The rest were even more pessimistic. Just over one-third of respondents expected regional GDP growth to be negative, opting for between 0% and -1% (16%) or worse than -1% (21%).

Investors are also still trying to bounce back from the effect of Covid-19 on all aspects of their portfolios – from investment returns to planning to operations to staff. 

By far the greatest negative impact, according to respondents, was on risk/reward, with many investors stuck between a choice of taking on more risk to meet return targets or lowering their targets. Other key knock-on effects included an inability to assign new mandates and do the required due diligence, and liquidity drying up for some assets when it was really needed.
 

This is a key factor in the skew in tactical allocation preferences over the next three months towards G3 bonds (47% of respondents). By contrast, more than half (53%) of investors surveyed said they would avoid emerging market equities in the coming quarter.

LONG-TERM PRIORITIES

Meanwhile, appetite for alternative assets remains strong. This might seem inevitable, given that Asian pension funds lag global peers in alternatives allocations, plus they need to address funding shortfalls that have been exacerbated by the volatility and lower-for-longer interest rate environment due to the Covid-19 pandemic.

Within the alternatives universe, it is notable that private equity was the clear favourite asset class among respondents – both in the shorter term for 2020, as well as in allocation plans for the next five to 10 years.

While private debt also had some support, infrastructure and real estate were seen as less attractive, at least for the time being.

Looking further into the future, respondent priorities over the next decade from an investment planning perspective include striving for the most effective ways to make better investment selections. 

As for key factors influencing investment planning, respondents pointed to incorporating ESG factors as their top response. Others included adding more internal decision-making resources, implementing modern data analysis and related tools.

 
SURVEY METHODOLOGY
 
• Results are based on the anonymous views of 42 individuals from international and local insurance companies, public and corporate pension funds, government entities and endowments.
• Respondents were mostly from Hong Kong, Singapore, South Korea, Thailand, Malaysia, Indonesia and Taiwan.
AsianInvestor selected the target audience based on size of the investable assets of each institution.
• Each participant used the same set of multi-choice questions to ensure consistency in the data set.