Manulife asks for clear exit plans from GPs while adding private investments

Manulife’s investment head in Hong Kong stressed the importance of a clear exit plan in the private market in order to keep liquidity risks at bay, all while the firm continues to add positions in alternative assets.

“The public asset would provide most of the liquidity needed for the business. On the other hand, the alternative asset can be used for diversification,” said Timothy Yiu, head of investment management at Manulife (International).

Yiu heads up the general account investment functions for Manulife Hong Kong’s life insurance business.

Timothy Yiu, Manulife

“Specifically on fund investments, we spend some time with the GP (general partner) to understand how effective they are in exiting their investment in the portfolio companies. So that way, they can return a stream of capital back to us over time. That's another source of liquidity as well,” Yiu told a panel discussion during AsianInvestor’s quarterly Insurance Investment Briefing Hong Kong last week.

Manulife sees alternative assets, including private equity, infrastructure, real estate, and agriculture, as a good match for its long-term liabilities. They see them as a “portfolio stabiliser” that provides lower volatility compared to the public equity market, while being less correlated among asset classes to give diversification benefits.

It has been gradually shifting away from public assets to private ones, and will continue to build the portfolio steadily in coming years, Yiu said, without giving specific targets.

Yiu manages alternative assets essentially in-house, through the general account team and an investment management arm, Manulife Investment Management (IM).

SAFE AND SOUND

Meanwhile, the firm spends quite some time with GPs to understand the valuation processes and policies.

“We prefer a GP that has a more conservative valuation policy. So we want to see that when they do the acquisition, they have the pricing discipline, so they don't just go out there tracing the high price asset and then trying to sell it higher,” Yiu said.

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They want to see that fund managers have different ways to source deals — for example, through proprietary sourcing or through a network of relationships in the industry to get exclusive deals rather than just competing in an auction or the competitive market.

“That way, they can get the acquisition at much lower multiples compared to the market average and provide some buffer should the market valuation decline,” he said.

In the real estate space, Manulife has been looking for core or core plus properties, such as logistics or multifamily residential, across Asia.

Earlier this year, Manulife IM agreed to acquire a significant minority equity position in Hong Kong-based Arch Capital Management, a private equity firm focused on real estate in Asia Pacific.

Once the deal gains regulatory approval, it will combine Arch Capital’s experience in opportunistic and value-add strategies with Manulife’s $2.9 billion in core and core-plus assets across the region to create a partnership managing more than $5 billion in assets across 12 Asian markets, Arch Capital said in an announcement in February.

In March, Manulife IM entered Japan’s multifamily real estate sector for the first time through a ¥19.8 billion ($137 million) joint venture with Tokyo-based Kenedix. The JV is to acquire multifamily assets in Japan’s major cities.

Manulife also looks at different buyout funds that are in the upper to lower middle markets across different high-quality fund managers.

Green infrastructure assets, such as energy storage and electric vehicle charging facilities, are also where the firm finds good opportunities.

“We are looking at different opportunities. We have continued deploying our capital to fulfill our increasing demand,” Yiu said, noting that the supply of assets here in Asia is not a challenge, and they’ve been spending a lot of money committing to different private equity funds and other real estate deals, for example.