State funds boost foreign teams in race for assets

Demand for private-market assets has increased sharply in the past year or so, forcing the big institutions to up their game amid fiercer competition. How? By deploying bigger teams and more experienced talent, says the Asia head of institutional business at a large fund house.

Some of the largest Asian sovereign funds – for example, from China, Korea and Singapore – are putting more senior figures in their overseas offices, he noted.

“If you look at the speed with which real asset deals need to be agreed on these days, it has jumped from months and quarters to days and weeks,” said the executive, on condition of anonymity. “So it helps to have senior people on the ground assessing and sourcing opportunities, and who can be trusted to pull the trigger [on deals].

“It’s becoming common practice for the Chinese, Korean and Singaporean groups to do this,” he added.

This trend reflects not only the soaring demand for private-market assets globally (despite concerns about high valuations), but also a growing inclination for institutions to make direct investments rather than allocations to pooled funds.

For example, South Korea’s Nation Pension Service has been hiring a raft of overseas executives in the past few months across infrastructure, private equity and real estate. The W578.2 trillion ($514 billion) fund is adding three in its London office and two in New York, having brought in four more in Singapore.

Rise in quality

In the past, Asian institutions had put individuals overseas largely to source and assess opportunities, but they are now making decisions and executing deals, noted the institutional head.

 “Over the past few years the quality of intelligence in Asian sovereign funds’ satellite offices has been getting stronger and stronger,” he added. “They have been getting more and more advanced in their thinking and positioning – there’s been a particularly big step change in the last 12-24 months.

“It’s a steep learning curve for some Asian asset owners – but they are learning fast,” noted the executive. The likes of Dutch pension manager APG and Canada Pension Plan Investment Board have been around for a long time, he said, but China Investment Corporation (CIC), for instance, was only founded in 2008.

Meanwhile, there is a similar, more advanced evolution of investment strategy taking place among large sophisticated Western asset owners, added the institutional head.

Canadian and European public pension funds, for instance, are allocating a certain sum of capital to senior managers in Asia and elsewhere, with pre-agreed investment parameters. This means they can execute on a more efficient and timely basis, he added.

Overseas offices spread

Meanwhile, sovereign investors continue to open offices abroad, largely to strengthen their capability for sourcing and executing deals.

CIC officially opened its New York office in May, to replace Toronto as its North America base, as it seeks to ramp up its alternatives exposure. And Abu Dhabi Investment Authority unveiled a new office in Hong Kong last year, with a view to improving its access to Chinese assets and Asia generally; it too has been building its private equity allocation.

Such satellite offices act as breeding grounds where individuals cut their teeth and gain international know-how, said the institutional executive. “The big Asian state funds identify future leaders and send them to London or New York to gain investment experience of, say, private equity or real estate for two years before bringing them back to the mothership.”

These individuals may learn even faster now, alongside more experienced hands.