Zurich Malaysia to enter private debt next year

By developing credit research capabilities in-house, the Swiss insurer's Malaysian unit hopes to join other asset owners in pursuing alternative investment opportunities.
Zurich Malaysia to enter private debt next year

Zurich Malaysia plans to enter the local private credit market sometime next year, AsianInvestor has learnt, further illustrating how investor interest in alternative assets continues to grow.

As at other insurance firms, Zurich Malaysia's investment portfolio has historically been tilted towards debt instruments from public markets. 

However, to enhance returns in a yield-hungry environment, institutional investors are increasingly embracing alternatives such as private debt as well as private equity, real estate and infrastructure. 

Zurich Malaysia looks set to join them.

“Our investment management team has put a lot of resources for our people as well as in the development of our own credit research platform that will allow us to enter the private debt market with confidence by the end of 2019,” Andrey Fomin, the Swiss insurer's chief investment officer for Malaysia, told AsianInvestor last week.
Andrey Fomin
He did not elaborate further. 
North America and Europe have hogged much of the attention in private debt markets, but investor interest in Asia-focused private debt funds is also significant, despite a patchy growth trend.
In June this year, a survey by alternatives industry tracker Preqin said 927 institutions were seeking private debt opportunities in the region. "Sharply increasing investor appetite bodes well for the region, even though historical [fundraising] has struggled to gain momentum,” it noted.

In that last respect, just $3.8 billion was raised by Asia-focused private debt funds in the 11 months to November-end compared with $8.7 billion in all of 2017, Preqin data shows.

Nonetheless, several heavyweight asset owners AsianInvestor has spoken to in recent months – including HSBC Insurance, Allianz and Korea Teachers' Pension –  continue to express an interest in private debt investing generally. 

Noah Holding’s group president has also indicated that the Chinese wealth manager, which is best known for private equity investing, is planning a move into private debt.

“We are likely to look at building a team around distressed debt [securities of companies under financial strain],” Kenny Lam said at an AsianInvestor event last month, adding that the wealth firm is working with some global players to assemble this team.

As at June-end, 59% of Zurich Malaysia's $1.7 billion investment portfolio (life business) was invested in corporate bonds, with 9.5% in local government securities, 20% in equities and another 10% in unit trusts and loans.


Interest among institutional investors has also been swelling for other alternative assets as well.

While private equity is out of scope for Zurich’s Malaysian operations, Fomin said the asset class has its merits given a long-term investment perspective.

“The long-term investment horizon which private equity offers can benefit a company in a number of ways, with the main reason being the investor will use their time wisely to create a careful strategy while seeking to minimise risk and maximise capital,” he said.

“The patient approach that most private equity funds employ ensures that final value is extracted from the company at the right time, when the market or sector is at its strongest or when investors or acquirers are drawn to the opportunity.”

Private markets and alternatives said, Fomin also said he spotted some opportunities in listed equities.

”The deep correction witnessed in Asian equities, including the [FTSE Bursa Malaysia KLCI Index] which has fallen 6% year-to-date, we feel has provided interesting entry points for investors willing to take a longer-term view on the market,” he said.

Other experts share that view, such as Ronald Chan, chief investment officer for Asia equities ex-Japan at Manulife Asset Management.

"We expect Asia to remain the growth engine of emerging markets, with China and India being the two of the fastest growing economies in the region,” Chan said in a December 6 research note. “The re-engagement of US-China trade discussions, if conducted objectively, can help to speed up the transformation process of the Chinese economy as China upgrades to a more sustainable and all-inclusive growth for the medium term."

That would heighten the re-rating potential of Asia equities generally, he added.

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