GAM further diversifies into alternatives
16 November 2012
News, Asia, Global
By Hui Ching-hoo
Swiss-listed active investment manager GAM is further diversifying its product mix away from traditional investment tools toward new asset classes, such as alternatives and emerging market (EM) bonds, as institutional clients worldwide become increasingly wary of the low-yield and inflationary environment. As Western institutional investors increasingly lean on returns from the alternatives markets, Asian counterparts are tentatively moving in.
GAM Global Head of Institutional & Fund Distribution Craig Wallis tells Asia Asset Management that the firm has seen a significant uptake in institutional clients in recent years. At the end of June, 28% of the firm’s AUM was sourced from institutional clients.
The firm offers a wide array of products including equity, fixed income and absolute return single managers to meet various investor appetites, he says.
“We believe in active management. Skilled managers can still outperform passive indexes. Nevertheless, I think the level of returns that clients expect for the next five years will be lower than return levels achieved in the ten to 15 years prior to 2008.”
The investment style of institutional investors is long-term committed; not easily persuaded to pull out due to short-term volatility, he notes.
“They tend to go for absolute return managers, and are currently looking at EM bonds and catastrophe insurance-linked bonds, among others products, as they seek to broaden their yield spectrums. Their investment spectrum is definitely more diversified than it was five years ago.”
The industry veteran says that Asian institutional investors are currently more narrowly focused than their Western counterparts, with relatively high exposures to respective domestic markets. Meanwhile, the Western institutional market is mainly focused on defined benefit (DB) pension schemes with stable pools of capital.
He adds that acceptance of alternatives is relatively low among Asian investors, who display return expectations that are very different from their Western counterparts.
Nevertheless, the low-yield and inflationary environment has led some of its clients to shift their focus from developed-market fixed income to higher returning assets, such as EM debt and local currency. Asian currency bonds such as dim sum bonds are among the beneficiaries.
Mr. Wallis says that Asia is the firm’s third business pillar after the US and Europe, emphasising that the Asian market is in its early phase of development, from the institutional investing perspective.
To advance its market penetration in Asia, Mr. Wallis says the firm will extend its product range. For example, Asian institutional investors lack experience in regard to new products such as catastrophe insurance bonds, so the firm has to put up more effort in the context of product, performance, and education. “We have to broaden the acceptance of our single manager alternative strategies with institutional clients,” he adds.
GAM’s assets under management totaled CHF 48.2 billion (US$51.0 billion) at the end of September 2012.
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