Growing allocations to alternatives and multiasset strategies have left the sovereign wealth funds and national pension plans that dominate Asia's institutional investor landscape relying more on external money managers to manage their portfolios.
Even as those bulge-bracket investors add research and investment offices around the globe, and build up internal capabilities to manage their portfolios more tactically, data from their latest annual reports show external managers overseeing bigger chunks of their portfolios now than in previous years.
- China Investment Corp. reported external managers overseeing 67.2% of the Beijing-based fund's more than US$200 billion international portfolio as of Dec. 31, up from 63.8% the year before.
- Korea's National Pension Service said 33.8% of its 442 trillion won (US$436 billion) investment portfolio was outsourced to external managers as of Dec. 31, up from 30.9% the year before; and
- Taiwan's US$20.1 billion defined benefit Labor Retirement Fund had external managers handling 43% of its portfolio as of Dec. 31, 2013, up from 34% a year earlier.
Miserably low yields on sovereign debt now are buoying demand in the region for alternative investments, even as uncertainty about what the end of quantitative easing will mean for markets is prompting demand for multiasset strategies, money managers say.
In an interview, Juan Delgado-Moreira, Hong Kong-based managing director and head of international for private markets investment firm Hamilton Lane Advisors LLC, said the hunt for yield now is helping boost allocations to alternatives managers from even the most sophisticated sovereign wealth funds in the region.
He declined to name clients but in July, a spokeswoman for Seoul-based NPS said the Korean pension fund will invest 400 billion won in a private equity co-investment fund managed by Hamilton Lane.
NPS' alternatives assets totaled 41.7 trillion won as of May 30, 2014, accounting for 9.5% of its portfolio, up from 8.4% at the end of 2012.
Even executives at GIC Private Ltd. — the Singapore sovereign wealth fund widely considered to be among the most capable at managing its own investments — said earlier this year they might boost allocations in coming years to alternatives managers with “niche expertise.”
The fund's 2012 annual report pegged the portion of assets overseen by external managers at “up to 20%.” A GIC spokeswoman declined to provide a current figure but the Sovereign Wealth Fund Institute estimates GIC's portfolio is now US$320 billion.
GIC's latest annual report, released Aug. 2, noted the fund has “over 100 active relationships with PE fund managers,” as well as more than 100 private equity investments made either directly or as co-investments alongside external managers.
Major investors looking to boost alternatives allocations now include Japan's US$1.25 trillion Government Pension Investment Fund, Korea's NPS and Korea Investment Corp., Taiwan's US$80.1 billion Bureau of Labor Funds and Thailand's US$22 billion Government Pension Fund.