The laser focus of the world’s central banks on bringing down inflation and what that could mean for global growth were key themes at the 2022 Milken Institute Asia Summit in Singapore on September 29.
“There's going to be risk of recession everywhere, I just think it's part of the reality. You can either be pessimistic or you can try to find ways to dance between the raindrops and recognise that there are a lot of recession-proof assets such as food supply, oil and gas, and shelter,” said Blake Hutcheson, president and chief executive of Omers, the Canadian pension fund with about $91 billion (C$125 billion) in assets under management, speaking on a panel entitled “The Long and Short of Patient Capital”.
Omers has for a long time tilted its portfolio towards private markets, with around 60% of allocated to infrastructure, real estate, and private equity, and around 25% in equities, according to Hutcheson.
“If you want to make a fortune, put all your chips on one square. But if you want to keep your fortune, diversify. And we are in full diversification mode,” he said.
While the typical investor defines a quarter as a three-month period, Hutcheson says to the long-term investors his fund represents, a quarter means 25 years and assets are allocated accordingly. This has allowed them to remain “in the black” even in periods of macro-economic uncertainty.
“If we believe in an asset, we're going to see it through the cycle, and continue to double down even if people are hitting it hard. We just keep the long view, remain optimistic, and recognise, because we're all realists, there are recessionary trends in the air in virtually every region in the world,” said Hutcheson. "In some places, it's already hit. They just don't want to call it.”
About $10 million of Omers’ portfolio is currently invested in the Asia-Pacific region, an amount which Hutcheson says the Canadian pension plan still hopes to triple over the coming decade.
“So far we’re very focused on India and Australia in two areas — infrastructure and real estate — and basically computer-screen investing in the rest of Southeast Asia from an equities standpoint,” he said.
Ridha Wirakusumah, chief executive of the Indonesian Investment Authority (INA), faces the same macro-economic uncertainty from a much different standpoint and with a mission he describes as “paradoxical.”
“We are tasked with having to develop wealth for future generations, which is obviously a risk-adjusted return, but also help Indonesia develop sustainably,” he said. “We have been focusing on a number of areas including infrastructure, healthcare, energy transition, as well as digital trends.”
Wirakusumah said it is “extremely easy to be pessimistic” when predicting how Indonesia’s one-year-old sovereign wealth fund, which has roughly $25 billion in assets, would perform in a 2023 recession given that many risk-assets have yet to price in a further economic downturn.
As the chair of the Indonesian B20 Finance and Infrastructure Task Force, Wirakusumah is of the view that infrastructure is “probably the single most important multiplier effect and human development index.”
“Over the long-term, the world may be in jeopardy here and there, but if you focus on areas where you can make the world a better place, there are many areas to invest, specifically in long term,” he said. “Indonesia is predicted to be the seventh largest economy within the next 10 to 15 years and there is a huge need for infrastructure, which has stable cash flow and is inflation proof.”
For his team at INA, while a recession may look worrisome, there is also a flipside as asset prices will likely go down, which for long-term investors is not necessarily a bad thing, he said.
As a developing nation, Indonesia hopes to continue to attract capital as well as expertise from foreign investors.
“We’ve had meetings with the Ontario Teachers’ and they are big in airports. With CDPQ, they have a lot of investments where we will be developing a platform to serve as our own portfolio. So it’s not only about bringing in capital, but also bringing in competencies,” he said.
Wirakusumah said that Indonesia is also blessed with natural resources such a nickel and manganese, metals used in electric vehicle production, which suits many rising global investment trends.
“A huge amount of people are moving in this direction, so in terms of green renewables, Indonesia is actually one of the hottest areas to look into.”