Institutional investors have long used computer systems to help them run their portfolio management, data, risk, trading and back-office functions – and some are now taking the next step in their search for greater returns and cost-efficiency.
Two big Western pension fund managers are cases in point, both of which have large and growing exposure to Asian assets: the Netherlands' APG Asset Management and the Teacher Retirement System of Texas.
APG, Europe’s largest retirement asset manager, has been exploring and deploying new technologies to improve investment performance on a global scale, its Asia-Pacific chief executive told AsianInvestor late last year.
“We have been exploring many in-house and market solutions,” Wim Hazeleger said, “including usage of alternative data, predictive analytics for portfolio management and trading and responsible investing.”
A major focus of the initiatives and systems APG has implemented are data management and automation. For instance, Hazeleger pointed to the firm’s alternative data platform for processing and analysing alternative data sources for fundamental stock selection.
APG, named AsianInvestor's International Investor of the Year into Asia for 2019 for its pioneering approach in the region, also employs what it calls a ‘Digital Butler’. It is an investment decision support platform for real estate that collects, cleans and analyses data and automates the investment process step-by-step.
“This platform is being gradually extended and with each extension, research tasks are taken over enabling us to make decisions faster, integrate more data and increase efficiency,” Hazeleger said.
“Equally importantly, because we have such a systematic approach to decision making, it’s easy to explain to clients why we make certain acquisitions or disposals.”
APG has €532 billion ($593 billion) most of which is accounted for by €456 billion Dutch pension fund ABP, with other retirement plan clients making up the rest.
Another driver of APG’s tech push is its desire to invest in line with environmental, social and governance (ESG) principles.
The institution has developed its Sustainable Development Investments classification – an artificial intelligence-driven qualification of companies’ contributions to the United Nations Sustainable Development Goals. APG did so together with Entis, a specialist data science group that it acquired from consultancy Deloitte in 2018.
Ultimately, the Dutch firm's approach to technology “has always been strategic and open", Hazeleger said. "We focus on strategically important areas, invest accordingly, build in-house where we think we can make a difference, and buy or partner in all other situations."
PRIVATE MARKET MOVES
Similarly, Texas Teachers is strengthening its technology capabilities, primarily to support its approach of increasingly insourcing management of its private market assets, its chief investment office said last week.
"We are very focused on making better use of the data and information that is in our private markets portfolio," Jase Auby told media on a conference on Friday (January 17).
The $153 billion pension fund – with $22 billion of assets in Asia and plans to set up a Singapore office – is increasingly trying to apply some of the same methods its uses to analyse public markets to its private market investments, he added.
"One thing we started doing in the private markets area was much more accurate risk measurement and modelling," Auby said. "Now it’s moved even beyond that – [onto] much better sector information, geographic information. The private markets are very much behind the public markets on this front."
In the UK, meanwhile, UK's Coal Pension Trustees has in recent years carried out its deepest dive yet into its total investment costs. Much of the time was spent on its private market strategies, as these required analysis of areas such as partnership expenses, such as for private equity investments; performance fees and carried interest; and operating costs, especially for real assets.
Such moves reflect a clear asset owner shift towards spending more on tech and data resources and expertise. Australia’s Future Fund, Singapore state fund GIC and the Canada Pension Plan Investment Board have all appointed their first chief technology officers in the past three years, the latter just last year.
A clear objective is to ‘do more with less’ and reduce costs and improve investment process efficiency.
Late last year, for instance, the Future Fund launched its new investment data management platform, following an initial three-year project to upgrade the A$210 billion ($145.2 billion) fund’s technology capabilities.
The new system puts all investment data into a central data warehouse and in easily comparable formats. Plus the search tools to make it far quicker for the investment teams to find the data they want, and combine it with other information to spot patterns across both public and private assets.