A deeper dive

Category: Asia, Global

While Asia Asset Management’s Fund Manager Survey has been at the forefront of tracking the big changes across the regional industry for more than a decade, our 2014 edition marked the closest look this publication has made into how assets in Asia-Pacific are being sourced and allocated.

The results were interesting, to say the least.

Of those fund managers transparent (or perhaps brave) enough to provide us with the relevant data, it was revealed that more than US$166.8 billion in assets were now derived from the region’s sovereign wealth funds (SWFs). By way of comparison, the same figures showed that assets sourced from pension funds, traditionally Asia Pacific’s big institutional players, was ‘just’ $147.2 billion.

It is worth bearing in mind that there is likely some overlap in the data, given that Singapore’s giant Central Provident Fund pension invests in assets via the Government of Singapore Investment Corporation (GIC) and central bank; meaning that pension assets managed by external fund managers are likely recorded as SWF or central bank business.

Still, the magnitude of these flows from SWFs to the region’s fund managers strongly indicates that these institutions will only become a more vital source of assets going forward.

Meanwhile, the Fund Manager Survey also showed the extent to which alternative asset classes were taking hold – or in a few cases not – with investors in Asia Pacific. Of the fund managers that disclosed the relevant data, nine said their allocations to assets such as private equity, real estate, hedge funds and commodities in the region currently stood at $1 billion or above.

Given the preoccupation with yield that has overcome institutional investors amid easy money policies that have compressed developed market bond yields, and not to mention a pricey global equity market, it is perhaps surprising that alternatives have not garnered more attention. Out of a regional portfolio valued at more than $100 billion, for example, State Street Global Advisors has allocated just $100 million to alternative assets.

In general, of the fund managers that revealed their asset allocation data, the investment sentiment appeared decidedly risk-on, with almost 50% stating that they were now investing more in equities than they were in bonds and other fixed-income assets.

By the time Asia Asset Management publishes the findings of next year’s survey, we will have likely seen the back of loose monetary policy in markets including the US and Japan, and possibly the start of it in Europe. Given the profound impact these developments will no doubt have, we will be interested to see if this is still the case.