The international investment arm of Beijing-based Taikang Life Insurance looks poised to issue its first global fixed income mandates, AsianInvestor has learned.
Taiking, which saw its AUM grow 12.5% year-on-year to $62.8 billion as at the end of 2014 by AsianInvestor’s AI300 data, is planning to seek external managers via its global asset management unit in Hong Kong, although the timeframe remains unclear.
Already Hong Kong-based Taikang Asset Management runs a $250 million portfolio for the Chinese life insurer that invests in the Asian US dollar bond market.
But Gordon Tsui, executive director and head of fixed income at Taikang AM, revealed his team had been tasked with recommending the firm’s first global bond mandates
“Our [fixed income] team focuses on the Asia region right now, but ultimately it should be a global fixed income portfolio,” he said on the sidelines of AsianInvestor’s second annual China Global Investment Forum in Beijing last week. “We may seek external managers for investments in Europe and the US.”
Tsui leads a small team managing Taikang’s overseas fixed income allocation, comprising one portfolio manager, one credit analyst and two dealers.
They focus on Asia’s dollar bond market, specifically investment grade credit in line with China Insurance Regulatory Commission (CIRC) rules, which limit investment in global bonds to securities rated BBB- or above by international ratings agencies.
Taikang requires Tsui’s team to provide alpha over the benchmark JACI Investment Grade Corporate Index. In the first eight months of this year to end-August, Taikang AM’s overseas dollar bond portfolio generated a 2.9% return, against 1.5% for the benchmark. In renminbi terms its return was 6.9% taking devaluation into account.
Tsui noted that Taikang AM’s bond portfolio was market-centric and therefore shorter duration that many industry peers, which typically look to match duration against their long-term liabilities.
“My portfolio’s average duration is about 3.8 years and the office in Beijing gives us the flexibility to adjust duration exposure,” noted Tsui. “Our portfolio is relatively small, that is why it will not bring a significant change to the overall duration exposure of Taikang group’s whole fixed income allocation.”
Asked how his team would look to beat benchmark ahead of the US Federal Reserve meeting last week [the Fed held rates steady], Tsui said it would strive to capture opportunities in the interest rate cycle combined with geographic and issuer analysis.
“Unlike many mutual fund managers, we do not have pressure of redemption,” explained Tsui. “It allows us to execute a counter-cyclical strategy and to buy market dips.
“We are not only focused on individual credit analysis, we aim to generate alpha by geographical allocation. We like China investment grade credit now because of limited market supply, while we underweight credits from Indonesia and Malaysia.”
Tsui admitted the decision on Fed funds rate was a concern, saying a rate hike could see a sharp rise at short-end of the yield curve to reflect bearish sentiment on bonds.
“Another possibility is a drop at the long-end to price in a view of the policy mistake,” he reasoned. “It is questionable whether the US economy can afford a rate hike at this stage.”