The market turmoil arising from the Covid-19 pandemic is redefining investments. First, fixed income as a safe-haven asset seems in question. At the height of the pandemic in March 2020, some US$189 billion exited the asset class, more than eight times the outflow of the previous month, according to Cerulli Associates, a Boston-based research and analytics firm.
Second, geopolitical events have heightened volatility and uncertainty, which have become part of the new normal. Third, the turmoil is making investors and fund managers re-think their approach to asset allocation and pushing them further towards sustainable investing.
Before the pandemic, fixed-income assets formed the bulk of the traditional 60-40 (60% fixed income, 40% equities) asset allocation model used as a default position by investors and fund managers. But in 2019, investors and fund managers who were still using the 60-40 model started veering away from it as fixed-income assets suffered low returns arising from rock-bottom interest rates.
Last year saw many fixed-income investors and fund managers migrating to the higher-risk sub-asset classes within the fixed-income universe to generate better yields and achieve diversification.
In 2019, equities were king with the S&P500 boasting an annualized return of 15.3%, driven by strong corporate earnings, stock buybacks, and loose monetary policy, among other things. The boom in the US market happened on top of unsettling geopolitical events like the US-China trade war, the North Korean crisis, and Brexit.
But in the first quarter of 2020, Covid-19 ended the 11-year-old US bull market as massive outflows and redemptions hit equity funds globally. Expectations that equities can fall further by as much as 20% in the worst-case scenario is no longer considered a remote possibility. On the other hand, the unprecedented government stimulus has turbocharged the US markets with key indices recovering the losses experienced at the height of the pandemic despite the country’s economy being in a recession since February 2020.
Indeed, some investors and fund managers saw the sell-off as an opportunity. The challenge is timing the dips and rebounds. In any case, many investors are now looking at private markets as an alternative means of diversifying their portfolios.
Going forward, investors and fund managers have to become more creative and innovative in their asset allocation and investment strategies.
It is in this context that The Asset announces the Investors and Fund Manager Awards 2020.
The National Pension Service (NPS) of Korea takes the award for Pension Fund Investor of the Year. NPS reduced its fixed-income allocation to below 50% in 2019, the first time it has done so since 1988. At the same time, it increased its allocation to equities and alternative assets.
Currently ranked as the world’s third-largest pension fund, NPS has 737.5 trillion won (US$598.93 billion) in assets under management as of the end of February 2020. The growth in assets comes from increasing contributions as well as investment performance.
NPS also increased the weighting of overseas investments in its portfolio. Foreign assets will continue to increase while domestic assets will be reduced in the future as the fund strives for more diversification. NPS plans to continue raising its allocation of overseas assets to 55% by 2024, up from 35.3% as of end-February. The diversification paid off for NPS, allowing it to post record investment returns in 2019.
Also, a new provision has been added to the pension law that will emphasize the principles for sustainable investments and responsible investing for NPS going forward. This will allow it to strike a better balance between investment activities and shareholder activities.
ARA Asset Management (ARA) takes the award as Real Estate Investor of the Year for Asia. The Singapore-based asset manager has been expanding its portfolio to include assets in China and Europe, allowing it to grow its assets under management (AUM) by a remarkable 31% to S$87 billion (US$62 billion) in 2019.
Part of the growth came from joint ventures (JVs) in the UK, including those with Venn Partners, a real estate debt specialist with US$5.9 billion AUM, and Dunedin, an office and light-industrial logistics specialist. The new JVs add to ARA’s other JVs in China, expand its footprint outside the Asia-Pacific region and provide it with greater capabilities in relevant asset classes. The new JVs also put ARA in a better position to help Asian investors tap opportunities in the European and UK markets.
Link REIT wins the Real Estate Investor of the Year for Hong Kong award. At a time when the Hong Kong real estate market was hit by the adverse impacts of political protest, Link REIT consolidated its position in the retail sector. The valuation of its investment portfolios reached HK$220.43 billion (US$28 billion), up by 0.9% from March 31 2019. Its net asset value per unit also improved by 1.2% to HK$90.58 during the same period despite the adverse market conditions.
Link REIT also completed another record-breaking divestment in March 2019 when it sold a batch of 12 properties to a consortium at a 32.1% premium. It also acquired Beijing Jingtong Roosevelt Plaza in Beijing in January 2019 and Central Walk in Shenzhen in March 2019. The mild growth in valuation was a result of the above-mentioned divestments and acquisitions.
It also diversified its portfolio outside China and Hong Kong for the first time by acquiring a 10-story Grade A office tower at 100 Market Street in Sydney, Australia, for approximately A$683 million (HK$3.649 billion).
Winner of the award for Long-only Equity Fund Manager of the Year – Asia is Louisa Lo, deputy head of investment, Asia ex-Japan equities and head of Greater China equity investments for Schroder Investment Management Hong Kong. Lo’s funds covering Greater China and emerging Asia posted high single-digit and double-digit returns, outperforming their benchmarks, and garnering substantial inflows during the awards period. Lo also won this award in 2019.
The success achieved by Lo and her team is based on Schroder’s fundamental investment philosophy of capitalizing on the inefficiencies of the equity markets by proactively adhering to a disciplined, coherent investment approach based on bottom-up research.
Winner of the award for Long-only Mixed Asset Fund Manager of the Year – Asia is Patrick Brenner, head of multi-asset investment, Asia, for Schroder Investment Management Hong Kong. Brenner’s Asia income fund and China income fund both posted double-digit returns outperforming their benchmarks. Brenner was recognized as “Highly Commended” for this award in 2019.
The success of the Schroder’s Asia multi-asset team was attributed to its diversified and unconstrained investment approach that enables the team to reduce unwanted sources of risk and avoid some of the hidden risks that single asset classes carry.
Winner of the award for Long-only Private Equity Fund of Funds Manager of the Year for Asia is Doug Coulter, partner at LGT Capital Partners. Coulter has been winning this award since 2013.
Coulter’s fund known as the Crown Asia-Pacific Private Equity IV raised US$1 billion and posted an internal rate of return of 26.8%. The success of Coulter’s team has been attributed to its stable and fully integrated local investment team, sophisticated technology platform, strong brand, presence in China, and solid returns relative to the competition and public markets, even as the team follows a prudent investment pace and style.
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