Asian asset owners look inward for higher returns

Regional institutions’ investment managers outperformed their external peers, underlining that they are just as vital as modern asset allocation strategies.
Asian asset owners look inward for higher returns

Over the past six years, internally-managed assets have outperformed those managed by outsiders, both globally and in Asia, which highlights why asset owners should invest in their internal fund managers by providing extra resources and training.  

June’s monthly report from Global SWF, a data platform that tracks over 400 sovereign wealth funds and public pension funds, found that in-house managed assets are likely to generate higher financial returns than outsourced ones. Globally, it found a negative correlation of -13% between the percentage of major funds’ assets outsourced and their average return from 2015 to 2020. 

In Asia, this number was even greater at -28%, based on data on 11 major state-owned investors that Global SWF provided to AsianInvestor.

Source: Global SWF

“It indicates that insourcing asset management (among many other conditions) may be a good way to boost performance,” Diego López, managing director of Global SWF, told AsianInvestor. But he stressed that the number should only be used for reference as funds rarely disclose publicly the financial performance of their own managers versus outsiders. 

Specific examples of better internal performance include the Social Security System (SSS), the Philippines’ national social insurance programme for those working at home and abroad, which says its internal fund managers have performed “much better” than external counterparts during the pandemic. The internally-managed portfolio was up by 12%, while some outsourced assets suffered losses of up to 8%.  

As the country’s largest pension fund, SSS manages $20 billion in assets. Its diversification into domestic services and financial sectors before Covid-19, including investments in the largest telecommunications company, a digital-savvy bank and a leading consumer food company, generated some big gains for the fund, said Rizaldy Capulong, SSS’s executive vice president and head of investments sector during AsianInvestor’s Asian Investment Summit in June.

The pension fund doesn’t own any overseas assets, and manages most of its assets internally. In 2019, it started to outsource some fund management, but slowed this down because of the pandemic.


State-owned investors globally have traditionally entrusted external managers with some of their portfolio, especially in private markets.

But as asset owners have built up their internal teams over the past few years, they have come to depend less on external managers, the report pointed out. These include AustralianSuper, the country’s largest superannuation and pension fund, which used to outsource the management of all of its assets but has cut this to about 50% since 2012.

Rizaldy Capulong,
Social Security System

“Bringing asset management in-house can improve net returns, increase alignment with stakeholders, and develop deal origination,” the report said. “Internalising asset management is a learning curve requiring skills and capacity building.”

Performance-enhanced incentives combined with training programmes to raise their investment and financial knowledge are on offer to the Korea Investment Corporation’s portfolio managers, a spokesperson told AsianInvestor.

The Korean sovereign wealth fund had $183.1 billion of assets under management at the end of 2020, with an ambition to grow this to $400 billion by 2035, according to Global SWF. It has 132 portfolio managers internally, according to the spokesperson, who declined to say how many external managers it uses or how successful they were in generating returns. According to Global SWF data, KIC manages 27% of its assets externally. 

In another sign of a fund investing in people to improve performance, the world’s third-largest pension fund, the $780 billion Korea’s National Pension Service, announced in April it would hire 54 investment executives to boost its capacity in both internal and external asset management.  

As well as receiving comprehensive training, the new hires will also have the opportunity to work at overseas investment partners as well as in NPS’s foreign offices.

Andrew Shin,
Willis Towers Watson

NPS manages 77% of its alternatives in-house, while outsourcing 57% of stock holdings, according to Global SWF.

As portfolios grow — the NPS wants to have W1 quadrillion ($894 billion) in AUM by 2024 —  large asset owners need to hire more people and come up with good plans to train and retain internal managers to strengthen governance, Andrew Shin, head of investments Korea with Willis Towers Watson, told AsianInvestor.

Beside their in-house assets, asset owners still need people to manage outsourced programmes so they can monitor the performance of external managers, and make investment strategies and decisions. “It requires a lot of energy and resources, even though you don't really buy or sell directly in those overseas markets,” Shin said.


Though Global SWF’s report shows that internally-managed funds did better than those managed externally, it also says there is no neat causal relationship between financial performance and who’s been generating it, and external managers can still play a role in generating alpha.

“Utilising their services helps capitalise on their local expertise and specialised knowledge, thereby avoiding companies and sectors with weak governance and other underlying issues,” the report said. 

Diego López,
Global SWF

“The external fund managers, I think, had an advantage over us in fixed income mandates, because they were much more nimble,” SSS’s Capulong said, noting that interest rates changed rapidly over the past 12 to 18 months.

Asset owners often turn to external managers when they are investing in a new asset class, region, industry, and do not have the internal expertise to do so, noted Global SWF’s López.

However, no two funds are the same and several factors play into whether and how much of a fund is managed externally. These include size, asset allocation, number of staff and offices, and an active or passive asset management strategy, he noted. 

For instance, the world’s largest pension fund, Japan’s Government Pension Investment Fund (GPIF), has only 150 employees in Tokyo, while Singapore’s GIC has over 1,800 staff spread in 10 offices in four continents - so GPIF will naturally outsource a higher percentage of its portfolio to external managers, he said.

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