HKBU endowment fund plans to enhance investment capabilities
Hong Kong Baptist University's (HKBU) endowment fund plans to boost its investment capabilities and gradually build out an investment office as it eyes greater portfolio diversification, its treasurer said.
The endowment fund, like many institutional portfolios, utilises a core-satellite approach, said Kevin Liem at the 19th Asian Investment Summit in Hong Kong.
“We had a traditional 60/40 beta portfolio to start with,” he said. “And currently, we also included roughly a 10%, liquid alternative hedge fund type of asset to diversify our overall portfolio.”
Liem chairs HKBU’s endowment fund, pension fund and the innovation venture capital funds.
The endowment fund’s strategy has been developed in collaboration with investment consultants and third-party asset managers, according to Liem, who is also managing director at multi-family office Masan Capital.
He also said the fund is interested in incorporating private assets to further enhance diversification, though this is being approached cautiously.
“We are exploring the inclusion of private assets in our portfolio to further enhance diversification,” said Liem.
“Before doing so, we are looking to build a small investment office. In my experience, if you don't have investment professionals, it's very difficult to manage private assets effectively.”
HKBU
PRIVATE MARKETS
Liem is charting a clear course for HKBU’s endowment fund, one that emphasises diversification, a measured approach to risk, and a keen eye for opportunities in volatile markets.
The veteran investor recognises the potential of private markets to generate attractive returns, particularly in a low-yield environment.
“After a year of volatility like 2022, demand for private assets will increase as the market becomes more accessible,” Liem said.
“However, from a university perspective, we don't currently have dedicated investment professionals. So right now, we're exploring the opportunity, but given the high interest rates, we can afford to be patient.”
He sees particular opportunities in private credit, a sector that has grown as banks have become more selective in their lending practices.
“I think the demand for private debt will continue to grow,” Liem said.
“Private credit is probably one of the areas that could lead to an asset bubble very soon, because you can see the spread between private credit and high yield bonds are compressing very quickly.”
He also stresses the critical role of due diligence, particularly when selecting external managers for private market investments.
“It's very important to understand the value add of the manager,” Liem states. “Some private credit managers focus on particular segments and provide strategic value to the issuers or borrowers. Understanding their business model and why it works is very important.”
THE CHINA QUESTION
Liem also addressed the complexities of investing in China, particularly for a Hong Kong institution, acknowledging the geopolitical realities while recognising the need for a pragmatic approach.
“When investing in China, you have to be practical about geopolitical exposure,” he said.
“For a Hong Kong institution, avoiding China is not politically viable. Even when selecting a manager for our Chinese equity portfolio, there are practical considerations in choosing between a US and a non-US manager.”
The headline on this story has been changed. Para 1 has also been updated.