Recent months have been rife with volatility for investors. Optimism in the wake of a relatively buoyant first few months of 2019 quickly gave way to the reality of unpredictable swings in stock and asset prices amid US-China trade tensions plus other geopolitical and macroeconomic uncertainties throughout much of the second quarter of the year.
Of course, investment strategies can vary a great deal between types of institution and from one country to the next. But some common themes are dictating how investors are approaching today’s landscape, including a broadly neutral-to-bearish outlook among asset owners for both the global and Asian economies for the rest of 2019.
In general, there is a rising disillusionment with active management. “We’ve seen a massive gravitational pull towards passive strategies. We’ve also seen factor investing becoming more prevalent,” said Mark Konyn, group chief investment officer of Hong Kong-based insurer AIA. His view is shared by several CIOs in Korea, including those at the Government Employees Pension Service and the Public Officials Benefit Association.
At the same time, some asset owners with sufficient scale are increasingly bringing assets in-house. Cost and control advantages are key reasons for doing so. This trend favours external managers that can offer specialist investment services that asset owners cannot match internally, Konyn said.
EXPOSURE OVER THE NEXT SIX MONTHS?
EXPOSURE OVER THE NEXT SIX MONTHS?
The trend reflects a rising desire by some of the region’s more assertive investors to have more say on mandates. “Managers need to be able to provide all data into our system, day-by-day, on cash levels and risk parameters. It has to become a cooperative relationship,” explained Ben Rudd, CIO at insurer Prudential Hong Kong.
Moreover, some asset owners need to be able to closely monitor investments and have more direct influence for fiduciary reasons, says Alan Liu, head of treasury at the Hong Kong Housing Society.
RISK OVER THE COMING QUARTER?
Another clear theme influencing portfolio decisions in Asia is the appetite for alternatives of all types. A shift towards co-investing is also apparent alongside the allocations to unlisted assets.
However, surging allocations to alternatives in markets like Korea are raising questions, given rising asset costs and the risk of over-exposure to market corrections.
APPEALS TO YOU MOST AT THE MOMENT?
Tae Park, deputy CIO at sovereign wealth fund Korea Investment Corporation, said: “A lot of [Korean] insurance and pension companies are getting into private markets because they supposedly exhibit low volatility, as they don’t have to mark them down in a market downturn. I think they are getting into alternatives exactly for the wrong reason."
Insurers in China are also expanding their teams to build more private equity investments. This interest is rising from a low base, but insurers appear keen to use the asset class to enhance investment returns and generate some alpha. The same is true for Japanese corporate pension funds, which are seeking more overseas private equity exposure, despite illiquidity concerns.
“There is a prejudice among corporate pension funds’ investment committees that illiquid investments are not healthy, but somewhat dangerous. They have a benchmark approach to investment, but I think that is wrong,” said Kosuke Okimori, executive investment director at Kewpie Pension Fund.
IS IN ESG-RELATED INVESTMENTS?
More broadly in Japan, larger and smaller life insurers are looking to diversify risk globally and across public markets to raise returns.
Against this backdrop, the results of this latest AsianInvestor Quarterly Sentiment Indicator aim to explain how a range of leading asset owners in Asia Pacific are positioning their portfolios across markets and asset classes, and identify key investment themes.