Asia's best asset owners: How Future Fund and CPIC stood out
The past few years have amply demonstrated why the world’s most successful asset owners combine process discipline with hard work, talented personnel and a willingness to embrace new opportunities.
Some of this year’s winners demonstrated global standards of sophistication and knowhow, while others have been expanding their capabilities amid increasingly unpredictable market conditions.
It was not easy to pick the winners. In addition to gaining self-nominations, we sought out the advice of some of the most talented and experienced advisers and consultants in the markets. And we invited a small panel of judges to volunteer their expertise and knowledge to assess applicants, and suggest their own. That still led to some highly competitive categories, in which we had to choose between impressive organisations.
These awards are a testament to the dedication with which the region’s best institutions take the management of their assets. As the world increasingly traverses a period of political uncertainty and inferior fixed rate returns, the need for investors to be nimble and open to new ideas will continue to mount.
We begin to detailing the reasons we chose the winners of our Market Categories. This begins with Future Fund, winner of the Australia/New Zealand category, and China Pacific Investment (Group) Co., the top ranked institutional investor from China.
AUSTRALIA/NEW ZEALAND
FUTURE FUND
The ultimate proof of the Future Fund’s robust governance, internal structure and the capabilities of its personnel can be assessed by the fact that, year after year, it keeps on pushing out strong investment returns.
The year ending June 30 was by no means a simple one. Many major asset owners reported losses, or barely stayed in the black. Future Fund, on the other hand, broke double digits in its return rate, reporting 11.5% for the year and a 10-year annualised rate investment return of 10.4%.
These strong returns depend heavily on a partiality to private assets; 45% of Future Fund’s portfolio are based in instruments including private equity, real estate, timberland and infrastructure. It has sold out where appropriate too, selling about A$5 billion of assets over the past two years. But the sovereign wealth fund isn’t resting on its laurels. Indeed, in mid-2018 it reviewed its organisation structure, with a particular focus on its investing, technology and risk management.
The emphasis on technology has helped the fund to begin more accurately assessing its underlying exposures across its portfolio
That review led Future Fund to create three new deputy CIO positions, to cover private markets, public markets and portfolio strategy. In addition, it appointed Richard Large into a new chief technology officer role, overseeing its ongoing push to improve its internal use of data to justify its investing behaviour.
This emphasis on technology has also helped the fund to begin more accurately assessing its underlying exposures across its portfolio, and work out where some areas are not contributing or even neutralising other investment goals. That is helping Future Fund to reassess its approach to external mandates; it’s restructured them along passive and active lines, and insists that active fund managers focus on the investing they’re hired to do and take more risk to generate alpha in those areas.
Internally, Future Fund is using technology to help ensure its staff are cooperative and motivated. It offers an online tool that offers them training modules in tandem with inhouse training. Its approach appears to be keeping people content; the organisation only saw a staff turnover rate of 5% in the 2018 financial year, low even by its standards.
CHINA
CHINA PACIFIC INSURANCE (GROUP) CO
Benjamin Deng only joined CPIC as group CIO in September 2018, but China’s third-largest insurer by assets has rapidly sought to upscale its investment capabilities. That is no surprise, given that he was essentially hired to do so.
In particular, CPIC has introduced a modern strategic asset allocation (SAA) approach, using macroeconomic projects and the latest ideas about how to best optimise investment portfolios. The company also established an investment committee to facilitate its investment plans, which is chaired by Deng. In addition, CPIC has introduced a new approach to asset and liability management, with a group committee setting policies and strategies for its various subsidiaries, which then each have ALM committees that execute them.
This shift in strategy has led CPIC to increasingly look to strategically invest across economic cycles. It matches its investment and risk projections to its SAA plan and China’s C-Ross capital requirements, to give it a decent idea of where best to invest for risk-adjusted returns.
Part of that process has led it to invest some of its insurance accounts into asset-based securities, perpetual bank bonds and bailout fund products, to help improve long-term investment yields. Other notable investments have included using Hong Kong-Shanghai Stock Connect, and buying preferred shares of large state banks in A-shares to match liabilities.
Like most of China’s insurers, CPIC has captive asset management divisions, in the form of China Pacific Asset Management, Chang Jiang Pension Insurance and CPIC Fund Management. Combined, they oversee about 75% of the insurer’s investing, and each has slightly expanded their staff over the past year.
These have also sought to improve their operations. AMC, for example, has built a data system based on trading and liquidity to support investing, and also has a two-year old research support platform, which includes investment research and analysis, and it’s aiming to further upgrade it.