The Dutch pension asset manager's Asia Pacific head of real estate says his team has just had one of its busiest years ever and that 2021 is looking similarly promising.
Since the firm made its initial forays into the region 10 years ago, starting with the acquisition of Yamaichi SecuritiesÆ asset-management business in Japan in 1997, funds sourced from the region have reached $56.5 billion of the firmÆs Ç393 billion ($554 billion) global AUM, as of June 30. (These figures do not include Lyxor Asset Management, the structured-product funds arm of Societe GeneralÆs investment bank.)
In Asia, retail dominates SGAMÆs business, contributing 80% of assets. Institutions make up only 8% of sales, but is growing faster, rising by 1% each quarter, to the extent Clot predicts institutions will account for a third of Asia-sourced revenue within a few years. ôAnd it may be as high as 50% in 10 years,ö he adds.
This reflects the pent-up demand among institutional investors to diversify investments overseas in more aggressive strategies. SGAM focuses on high-margin actively managed products, including hedge funds, structured products, private equity and, increasingly, real estate. Clot says this is what most institutions are interested in. ôAsians are going straight from the appetiser to desert, from money-market funds to satellite products.ö He says thematic equity funds are particularly popular.
The reason for this behaviour: demographics and the need for pension funds to find asset classes with low correlations and absolute returns.
ôWhat can stop this?ö he says, repeating a question. ôTo be frank, nothing. People cannot get younger. They could get poorer, but the substitute for poor populations, the defined benefit plan, is disappearing. No government has the means or the will to contribute to DB plans. And most DB plans that remain have put their money into US Treasury bonds, which is insufficient to sustain their systems.ö
Economic or market turmoil can slow the trend, and spread panic that derails investment plans for a while. Regulators can prevent pension funds from accessing risk-based products. But Clot believes these hiccups are destined to remain brief.
The biggest firms are in the best position to capitalise on this trend, he argues. ôInstitutions investing in hedge funds, for instance, want both absolute returns and long-term stability. They want to deal with professionals that are accountable. Therefore clients put a big emphasis on risk management and reporting. ThatÆs why more than 65% of flows to alternatives go to the top 25 hedge-fund companies, and why institutions are partnering with fund managers, particularly in Asia.ö
For both institutions and retail, competition increasingly falls in the area of disclosure and transparency û not in the volume of information but the quality. As more individuals take responsibility for financing their retirement, and as institutions venture into new markets and asset classes, the paramount issue is whether they understand the real risk-to-return ratio.
ôThe risk is too much irrelevant information,ö Clot argues. ôService is about the quality of information. Today in Europe a æsimplifiedÆ prospectus is 500 pages long. ItÆs hard to be concise, so we must think about whatÆs pertinent, and take a risk in leaving some things out. Selectivity is complex to organise.ö
Fund managers are increasingly working with what Clot dubs ægo-betweensÆ to try to provide useful information, including funds of funds, consultants, independent financial advisors and journalists. ôWe must help translate the complexity of markets for ordinary investors.ö
SGAM has established its framework in Asia and is now trying to push its ideas and cross-sell products. In Japan it has the old Yamaichi business as well as that of Resona Asset Management, acquired in 2004. Its operations in Japan, Hong Kong and Singapore resemble those in Europe or the United States (where it bought Trust Company of the West). Of the $56.5 billion sourced from Asia, $31.3 billion comes from Japan, while $7.6 billion comes from Hong Kong and Singapore.
But the real growth is in China, India and especially Korea, where it tackles the market via joint ventures with local partners, a route it took to ensure closer contact with customers as well as with regulators. In turn SGAM has been willing to compromise its brand name or accept minority positions. Its strategic partner in India since 2004 is State Bank of India; SGAM helps SBI with training and IT, as well as provides product. It has a similar model with Industrial Bank of Korea.
In China it wanted a partner more diverse than a bank, hence its arrangement with Bao Steel Group, which has a network across the government and corporate landscape (including its securities business, Fortune, SGAMÆs JV partner), as well as with banks.
Each of these three JVs has brought in $5-6 billion of business since commencement and account for 350 million customers in total. ôThey are not as wealthy as European countries but they are growing faster and investors there want to take more risk,ö Clot notes.
In its second annual sustainable investment report, the sovereign wealth fund says it invested $1.79bn in ESG bonds. Experts say asset owners next need to consolidate their standards.
Senior executives at the Taiwan financial group and Canadian pension fund believe that companies have to make an ESG transition, and may not have a choice in a few years.
Record low borrowing costs in Australia are feeding demand for the country's real estate, with domestic and global investors raising their allocations into the sector.
Experts have a diversified view on the appeal of private assets across the region, but one thing's for certain - inflows are rising, particularly into China and the US.