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AGI eyes Asian opportunities

Category: Global
By Hui Ching-hoo

Limiting the downside while keeping the upside open

Risk assessment and dynamic asset allocation have grown increasingly widespread among institutional investors worldwide. And international asset management giant, Allianz Global Investors (AllianzGI), aimed to capitalise on this trend with the launch of its global solutions business in 2011.

This enterprise mainly caters to clients by offering a broad range of investment and risk advisory services with the goal of optimising their risk-adjusted returns to help building customised portfolios.

Despite about 90% of the firm’s asset advice being sourced from Germany, Arun Ratra, head of global solutions at AllianzGI, tells Asia Asset Management that the firm is pointedly looking to promote its services beyond Europe, reaching out to the US and Asia. “The business is currently European-focussed with high, single-digit growth. But we expect this growth to be significantly buoyed by our expansion abroad going forward,” he says.

Explaining global solution services, Mr. Ratra notes that the team initially assesses the investment chain from the client’s point of view: “With pension funds, for example, we normally carry out a liability analysis and asset liability management (ALM) study for the clients before developing an appropriate strategic asset allocation. We then buttress the asset portfolio with dynamic risk management so as to assure that we can generate returns at a certain risk level.

“Institutional investors are grappling with how to provide governance in the sense of cost consciousness and professionalism. In this context, we provide our clients with innovative and customised solutions,” he adds. “The key benefits we offer them are safety through, for example risk overlays, and retirement solutions. This, together with our proven innovative investment approaches, enables our investors to enjoy safer returns and more predictable outcomes.

“The business has a broad institutional and retail client base that includes pension funds, corporate funds, sovereign wealth funds (SWFs), and insurance companies. We’re also tapping into retirement solutions and income-seeking investors in offering better defined contribution (DC) products.”

Mr. Ratra is confident AllianzGI has a marked competitive edge, given its stellar track record and broad array of services. These range from investment consulting to DC solutions.

To accommodate sophisticated investment demand in the present volatile market environment, the global solutions team focuses on four areas – investment risk advisory; pension advisory and services; manager research and selection; and retail life/assets solutions – incorporating about 94 professionals based primarily in Germany.

The global solutions team has already deployed a representative to Japan, and it will recruit a head of solutions specialist there in the near future; the team is also looking to place somebody in Hong Kong. “Over the longer term, we must expand our local team in the territory and other Asian countries because of the regulatory differences between Asia and Europe,” explains Mr. Ratra.

The main challenge for AllianzGI in developing their global solutions business in Asia is that local investors traditionally emphasise security selection and regional country diversification and not liability analysis, ALM and asset allocation. Another is the variance of regulatory frameworks and investment practices across the region, compared with European norms.

Pension funds are increasingly employing “smart risk taking” approaches when it comes to translating liabilities analysis into strategic asset allocation. Institutional investors moving from pure benchmark-orientated to actual return-orientated or liability-driven investing evidence this trend.

To effectively control risk, Mr. Ratra believes that investors should look to real assets, such as infrastructure and real estate, which can deliver uncorrelated returns as against equities and fixed income. As well, investors can make use of rebalancing, and dynamic risk management as well as uncorrelated sources of alpha to readjust risk exposure.

As for investors’ risk tolerance, the majority of institutional investors are notably risk averse against the current economic backdrop. “I think everybody has to be more conservative. Their primary objective is to use their budgets carefully, aiming for a better risk return profile and more solvency.

“In view of the impact of QE tapering – an increasing number of investors are seeking to reduce their exposure to fixed income.”

Citing Japan’s large Government Pension Investment Fund (GPIF) as an example, Mr. Ratra confides that the Japanese market has been mired in a prolonged downcycle, featuring low rates and generally low equity returns. Thus GPIF is under pressure to overhaul its portfolio in the face of the country’s dramatically ageing population; which translates into an imperative that the GPIF portfolio needs to become more diversified with a relatively higher proportion of risky assets.

“With our dynamic asset allocation, we can offer pension funds a broader spectrum of riskier asset classes with smarter solutions that limit their downside on the one hand while keeping their upside open,” he claims.