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Asia's large investors plan to raise exposure to alternatives, Principal says

By Asia Asset Management  
Nov 8, 2019

Almost half of Asian institutional investors plan to increase allocations to non-traditional or alternative assets amid concerns about economic and geopolitical risks in the US and Europe over the next year, according to survey findings from Principal Global Investors.

The US asset manager polled 80 large Asian investors about their market views and asset allocations at a conference in Singapore last month. The investors, who manage a combined US$459 billion of assets, include family offices and private banks.

Some 49% said they are most likely to increase allocations to alternatives versus just 6% who expect to raise exposure to stocks, and 9% to bonds, Principal says in a statement on November 7. About 29% plan to raise the multi-asset component of their portfolios.

Around 42% of respondents identified a “significant deterioration” in European economies as a so-called gray swan – a potentially significant but low probability event that could shake up markets – in the next 12 months, and 24% expect a “shock outcome” at the US presidential election next year.

Kirk West, Principal’s head of international offices, says the “unpredictability” of European and US politics is having an impact on investor appetite for risk assets in developed markets.

“As a result, institutions in Asia appear to see great opportunities in the decorrelated returns and risk profile that can be found in alternative asset classes and the diversification offered by multi-asset solutions,” he says in the statement.

According to Principal’s Chief Strategist Seema Shah, real estate across public equity, such as US real estate investment trusts, public and private debt and private equity should be a “key constituent” in the portfolios of Asian investors looking for exposure to alternative investments.

Property, especially private real estate, is a long-term asset class with different drivers and dynamics from global stock markets, and is “somewhat sheltered from downside risk and sudden market selloffs”, she says in the statement.

The survey also found that 18% of respondents expect a significant deterioration in Asian economies over the next year, and 16% see a major spike in inflation because of trade tariffs and supply chain disruption.

Principal Global Investors had $459 billion of assets under management as of October 2019.