Korea Post's new RFP shows appetite for passive funds
Korea Post has published a request for proposals (RFP) for a global equity exchange-traded fund (ETF) mandate for its savings unit.
The government postal agency aims to hire two asset managers for the mandate, which will be benchmarked against the MSCI ACWI, a stock index tracking the broader global equity markets.
The number of finally selected managers may change, considering the number of supported managers and evaluation results, Korea Post said in the request, published on January 2.
Applicants must be locally registered fund houses with at least W10 billion ($8 million) of assets under management on average in their global equity ETF portfolios in the three years leading up to November 2022. The tracking error of funds must be below 3%.
According to one Asia-based researcher at an investment consulting firm, the general trend among asset owners is to move towards active management, although he said passive mandates such as ETFs had their own merits.
“There is always going to be a role for passive equity management," the researcher told AsianInvestor, speaking about asset owners in general and not wanting to be named. "It helps bring down fee sensitivity, which is an ongoing trend. It helps achieve a lot of aggregate portfolio level.”
Proposals for Korea Post must be submitted by Friday January 13. Winning bidders are expected to be chosen by February 7. Firms will be appointed for a two-year term.
Sejong-headquartered Korea Post has around W150 trillion of assets under management.
ESG AND ACTIVE
The researcher said may factors were contributing to the importance of active equity management, especially tackling environmental, social and governance (ESG) issues in investment portfolios.
“If asset owners want to have a deep and aligned ESG approach, they need to go active in large parts of [their] portfolios," the researcher said. "That’s good for the managers because it gives them another justification for the value they can bring to each client.”
During the past couple of decades, passive investment has grown considerably, and is concentrated among a handful of managers, whereas there are many more active managers, making the market less concentrated.
“Active management plays in important role in enhancing returns but also mitigating risks, where ESG is an example of that," the researcher said. "We're seeing many asset owners thinking about how they can use active managers to meet their return objectives [and] also diversify their portfolios and make them more resilient to some of the big structural risks that lie ahead, like inflation.”
Over the past year, many investors have been re-evaluating their portfolios, thinking about how to use active management to make them more resilient to inflation, a task that is difficult to do on an asset-by-asset basis.
Against the backdrop of an increasing focus on ESG, the consulting firm is seeing more interest in identifying active managers that can implement “robust approaches to sustainability within portfolios” when asset owners move for external mandates.
“Some asset owners have a philosophical preference for passive more than active, but even those maintain some level of active allocation within their portfolios – simply also because in some areas you can’t do passive, so then they choose active by default,” the researcher said.