Asia asset owners face portfolio monitoring challenges as alts gain traction
As large asset owners in Asia allocate more of their portfolios to alternative assets, they are facing mounting challenges in managing and valuing these portfolios, which now encompass both public and private market holdings, all with varying levels of transparency and different reporting cycles.
“The ability to track and manage all those different valuations across your portfolio and then feed that up into your broader ecosystem to allow the whole of fund view across public and private… [is something that] asset owners across the world, but definitely [Asia Pacific] are looking to solve,” said Alex Popp, global head of sales and account management for private markets at Charles River.
Charles River
“We see this more with the larger asset owners, especially those that have more private markets focus, because it becomes a harder thing to pull together without technology,” Popp told AsianInvestor.
Several large asset owners across the region have been focusing on or plan to boost their alternatives allocations, such as Singapore's Temasek, GIC, Japan’s Government Pension Investment Fund, the Korea Investment Corporation, HSBC Life, and Indonesia Investment Authority.
Popp highlighted difficulties in managing capital calls, risk exposure, valuation, and data validation for alternative investments.
“Once you get to a certain scale, it becomes really hard to manage all the capital activity,” he said, noting the added layer of complexity in evaluating the total portfolio across public and private assets.
“Measuring performance and risk across a diverse set of assets with different liquidity profiles and valuation methods can be difficult,” Nick Kelly, head of private markets research, Asia Pacific at WTW, told AsianInvestor.
A FRAGMENTED MARKET
WTW
Asia Pacific-based LPs invest in more deals across the region than in other geographies. And the trend has become more obvious this year, compared to a year ago, according to the latest Preqin survey.
The fragmented nature of Asian markets certainly poses challenges for LPs when it comes to navigating through the different reporting and disclosure regulatory environments, currencies, cultures, and languages in alternative investing, Popp said.
The limited in-house expertise in alternative investing can also hinder effective management and evaluation, WTW’s Kelly noted, adding that this is less of an issue in markets such as Australia, given the international expertise within large asset owners, and the use of consultants across the markets.
The cost of money, time, and other resources to process all the data can be significant, he said.
The Preqin survey also revealed Asia-Pacific LPs’ ongoing concerns around portfolio valuation, with half of them naming transparency and governance as a key metric for general partners (GPs). A substantial proportion still thought their alternative assets were being overvalued.
VALUATION CONCERNS
“The reporting and disclosure standards, such as the level of detail as well as reporting timeline, vary across GPs. And for valuations, there is also inevitably substantial subjectivity involved,” Angela Lai, head of Asia Pacific and valuations, research insights at Preqin, told AsianInvestor.
“These are factors that make it a challenge for LPs, especially where they have allocations to multiple funds or fund managers in their portfolios,” she added.
Johnny Adji, Asia alternatives leader at Mercer, noted that key challenges for Asia-Pacific asset owners on valuations, particularly in private equity, is around the frequency of valuation.
For example, most US private equity managers use third parties to value one-third of their holdings per year. By contrast, the real estate and infrastructure asset classes value their holdings annually via third parties, with quarterly internal values or marks for open-ended funds, he said.
“Therefore, there are structural valuation cycle gaps between the asset classes,” Adji told AsianInvestor. “Especially for private equity investments, investors need to rely on the managers’ internal valuation or marks for their annual performance reporting and valuations.”
While experts pointed to the potential of artificial intelligence (AI) in streamlining data management, they acknowledged that meaningful breakthroughs are still in the early stages. Investing in technology remains crucial for asset owners in addressing the portfolio oversight challenges posed by increasing alternatives exposure, they noted.