Value and yield are at the forefront of investors’ minds, with managers expecting increased allocations to alternatives and renewed appetite for continental Europe and the UK, finds AsianInvestor and Clifford Chance’s annual survey of fund industry executives.
In contrast to last year’s survey, where expectations for public equity rose strongly at the expense of alternative vehicles, our 2014 survey showed improved sentiment towards alternative funds.
Asked which vehicles investors would use to allocate capital to Asia over the next 12 months, infrastructure projects (+11 percentage points), private equity funds (+10), commodity strategies (+9), credit/financing funds (+8) and hedge funds (+7) were all up strongly year-on-year.
Distressed/opportunity funds (+4 points) and private equity FoFs (+1) also saw an increase in our 2014 survey, the results of which appear in the July edition of AsianInvestor magazine. To read our e-magazine online, please click here.
Where they are expecting rotation is out of debt capital markets, with expectations for direct DCM investing down 16 percentage points year-on-year. While direct investing in equity capital markets was still the top answer at 48%, it was saw a 13 point decrease from our 2013 survey.
“The fact that private equity, hedge funds and credit financing are up is consistent with what we are seeing from our work flows,” says Mark Shipman, a partner at Clifford Chance in Hong Kong. “I think investors and sponsors are getting a bit more comfortable as to what the regulatory regime [around alternative strategies] actually looks like.”
The strongest decline came in managed accounts, which could be wishful thinking from managers who may prefer to utilise a combined platform rather than cater to many different individual accounts.
In terms of which geography will receive the most capital over the next 12 months, China (including Hong Kong) was the overwhelming top choice with 50% of respondents placing it first, second or third. It was followed by North America with 45%.
While these results were consistent with our 2013 poll, there was a marked increase in expectations for continental Europe (+24 percentage points) and the UK (+11). Presumably this was due to anticipation of economic recovery amid the hunt for value.
Headed in the other direction, the geographic blocs of Asia (including and excluding Japan) were down (-7 and -6 points, respectively), as was Southeast Asia (-16) and Japan (-14), with structural change under prime minister Shinzo Abe seen as hard to achieve.
When it comes to investor segments that are expected to provide most flows to managers in Asia over the next year, top of the pile was sovereign wealth funds, with 62% of respondents placing them first, second or third.
Pension funds followed closely behind with 61%, while insurance companies saw a four-point decline year-on-year to 46%. Interestingly there was a five-point increase for endowments (18%).
Notably, the retail/mass affluent/wholesale segment was up marginally even as the family offices/high-net-worth segment sank 14 points on last year, indicating that managers see the brightest growth opportunities with the institutions with the most capital to allocate and the mass affluent – which could be driven by cost-efficiency needs.
Our 2014 survey received 243 responses – the same as last year – with participants including regionally located businesses and sales executives among asset management firms, asset owners and distributors of investment product.