Asian asset owners evolve their operating models and focus on ESG: study

An unrecognisable financial landscape has necessitated adaptation of new methods and a focus on ESG by public asset owners in Asia.
Asian asset owners evolve their operating models and focus on ESG: study

After a decade of historic lows and profound societal, economic, and technological changes, public asset owners are looking to update their data management and operating models to meet the unique challenges of the market, according to a new whitepaper.

Sovereign wealth funds, public pension funds and central banks, as well as other public institutions such as guaranteed funds, represent over $40 trillion in investable assets, according to BNY Mellon's latest study, “The Evolution of Public Asset Owners”.

The study identifies how public asset owners are evolving their operating models to better meet the challenges of an unrecognisable financial landscape following the impact of societal, economic and technological changes over the last decade.

Rohan Singh,
BNY Mellon

“Public asset owners are unique. They operate at the intersection of government and the private sector and pursue national or public missions through the power of financial markets,” Rohan Singh, global head of asset owners, asset servicing and digital at BNY Mellon, told AsianInvestor.

“They understand the need to evolve against the backdrop of the current market environment, geopolitical tensions, the demands of the public, and the need for strong ESG credentials,” he said.

For public asset owners to transform themselves from mere stewards of national capital, focused on safety and long-term growth, to institutions that have a presence on the national or even global stage — and taking a clear stance on ESG (environmental, social and governance), technology, and the shape and development of their countries and markets — this calls for the transformation of their operating models, said Singh.  

“[This is] not just to support more sophisticated investment strategies, but to respond to these demands with more robust data, better employee engagement, and working with the right partners.”


Despite heightened geopolitical risks and a changing macro landscape, the pressure to meet investment objectives and return targets came across very strongly in Asia and Apac, according to Singh.

“There have also been increasing liquidity challenges arising from areas such as government action allowing pension withdrawals to sovereign funds assisting with relief programs during the pandemic. In essence, these entities have given up investment returns and now need to double down on alpha creation to keep in step with the long-term creation of sustainable reserves,” said Singh.

“Liquidity was very interesting as these organisations pursued increasing allocations to private markets in the quest for uncorrelated returns, but had to balance this against the illiquidity premia. The knock-on effect we saw was the need to transform data management and operating models to keep in step with a dynamic investment strategy,” he said.

Therefore, a data-centric operating model is increasingly seen as critical to adapting to dynamic changes in investment strategy whilst managing heightened risk, including geopolitical risk, according to the study.

“Hence the survey noted that globally, only 6% were satisfied that their operating model was future ready, and 63% were contemplating a data-led transformation,” said Singh.  

A total of 61% of survey respondents cited data integration and analytics as by far the greatest operating model challenge across all public asset owner types, sizes and geographies.

“Optimal data integration allows data to move seamlessly from the portfolio manager to the front and middle office and then to the custodian and back office, informing decision-making throughout,” said Singh.

“As one APAC asset owner summarised, the keyword is ‘integrated’. Asset owners want systems where trade flows to compliance to ensure activities fit within guidelines, and if it is authorised, the trade automatically feeds into the back office, which releases the necessary instructions. Eventually, there is much less manual intervention and the issue of a single security master across public and private markets,” he said.


Most public asset owners interviewed now consider ESG factors in their investment strategy, manager selection or exclusion lists. Some even play an activist ESG role. The practicalities of incorporating ESG into investments and operations are now the key challenge.

“In Asia and Apac, environmental segments are proving the most popular investment themes, such as clean energy and lower carbon emissions, as well as water management and sustainable transport. Demographics, an ageing population, and technology were considered important social themes,” said Singh.  

However, though not unique to Asia, the most significant ESG challenge for public asset owners is the availability of reliable, transparent and comparable data and metrics to measure performance. ESG data lacks standardisation, even in asset classes where data is relatively advanced, such as equities.

“We heard consistently that public asset owners find it challenging to measure ESG performance in each function, and are actively looking for providers to help them understand and improve their ESG frameworks and decision-making,” said Singh.


The BNY Mellon study highlights uncertainties created by the pandemic, inflation concerns, yields, and likely elevated equity valuations, and the interest rate actions undertaken by central banks have emphasised the need for public pension funds to focus on downside protection and robust stress testing, so portfolios can sustain near-term shock.

‘These are long-term investors with well-developed strategic asset allocation policies and a growing total portfolio approach. As such, significant changes were not seen in the investment profile. Nevertheless, there was a high degree of uncertainty that needed to be macro conscious,” said Singh.

For this reason, alternatives have become an increasingly significant destination for public pension assets, according to the study. For example, following recent changes in regulations, one public pension fund plans to increase its allocation to alternatives to 40% of its portfolio. An interviewee at another public pension fund that had reached a 5% alternatives allocation now targets 16%, while still another said it plans a new 6% allocation to alternatives.

“These allocations reflect growing assets under management and a reallocation of investments across asset classes,” said Singh.

“For pension funds in particular, they were already facing the demographic phenomenon of ageing populations and the need to find increased and uncorrelated returns, which is where we saw increasing allocations to alternatives.”

Alternative assets themselves bring their own data challenges due to unstructured data, including deal documents and capital calls, among others, which only accelerated the need to future-proof operating models on a solid data-led foundation, he said.

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