Sat, Nov 22, 2014
A A A
Welcome Guest
Free Trial RSS
Get FREE trial access to our award winning publications
Industry Updates

Greenwich Associates: Asian institutions defy global de-risking trend

Thursday, June 14, 2012
Opalesque Industry Update — Institutional investors in Asia are going against the de-risking trend that has taken hold among their counterparts in Europe and the United States by shifting portfolio assets out of cash and domestic fixed income and into higher volatility asset classes including equities, and emerging markets assets and more specialized fixed-income strategies.

In 2010, in the wake of the collapse of equity market valuations that occurred during the crisis, fixed-income investments made up 73% of Asian institutional portfolios. That share decreased dramatically to nearly 59% in 2011 and declined again to 58% in 2012. Meanwhile, equity allocations increased from 13% in 2010 to 22% in 2011 to 26% in 2012.

“These allocation shifts were driven in part by the strong recovery in stock markets from 2010 to 2012,” says Greenwich Associates consultant Abhi Shroff. “However, unlike their peers in the developed west and Japan, Asian institutions were also moving proactively over that period to increase their exposure to equities.”

Growing Appetite for Risk
From 2010 to 2012 Asian institutions’ average allocations to domestic equities increased from 5% of total assets to 10%, and allocations to international equities grew from 8% of assets to 16%. “Underlying these allocation decisions are extremely bullish expectations about future investment returns,” says Greenwich Associates consultant Markus Ohlig. “Asian institutions’ expected rates of return top those reported by institutions in other markets by a wide margin in nearly every major asset class.”

Even within relatively conservative fixed-income portfolios, institutions are forgoing traditional global strategies in favor of more focused and specialized approaches such as Asian fixed income, U.S. bonds, emerging market fixed income, corporate bonds, and high yield. In alternative asset classes, Asian institutions are leaving behind fund-of-fund structures in favor of direct investments in hedge funds and other vehicles.

Challenge for Internal Management Teams
The increasing complexity and changing risk profiles of institutional portfolios could represent a real challenge to Asian institutions, many of which manager sizable shares of their assets internally. Although the share of assets managed internally by Asian institutions has been on the decline for the past two years, institutions in the region still manage approximately 80% of their assets in-house. What’s more, Asia’s smaller institutions have an even higher share of internally managed assets at 94% and have shown no meaningful shift toward more external management over the past few years.

Compare those percentages to those in the United States and Europe. Overall, U.S. institutions manage about 12% of assets internally. Even this average makes internal management appear more prevalent than it actually is. In reality, internal management in the United States is limited almost exclusively to the largest institutions. In continental Europe, where insurance companies make up a much bigger part of the marketplace, institutions in 2011 managed 51% of assets internally — a proportion that had declined from an average of 70% in 2010.

“Any institution that is attempting to actively manage its own assets for the purpose of generating alpha is competing directly with asset management companies that are more focused on investing, usually better equipped and typically staffed with investment professionals who are better paid and, therefore, are often more experienced,” says Markus Ohlig. “For that reason, as Asian institutions diversify their portfolios, they should consider following the example of their counterparts in Europe and North America by leaning more heavily on the support and expertise of external asset managers and consultants.”...Corporate website:Source
PD

What do you think?

   Use "anonymous" as my name    |   Alert me via email on new comments   |   
Today's Exclusives Today's Other Voices More Exclusives
Previous Opalesque Exclusives                                  
More Other Voices
Previous Other Voices                                               
Access Alternative Market Briefing


  • Top Forwarded
  • Top Tracked
  • Top Searched
  1. Regulatory - Stringent rules for hedge funds make the financial system fragile[more]

    From FT.com: …It is one thing to impose a regulatory burden when there is a clear need to do so. Banks are underwritten by taxpayers via deposit insurance as well as the too-big-to-fail safety net; they need to be reined in, and if they shrink as a result, that may be welcome. But it is another thin

  2. Investing - Apple: Hedge funds are crazy about it, Greenlight Capital took stake in Citizens Financial after IPO, Tiger Global added to Hertz, exited Dollar General last quarter, Oberweis sells NQ Mobile stake as Valiant adds shares, Whitney Tilson sticks to losing bet on MagicJack shares, Brigade Capital backs €90m Quinn sale[more]

    Apple: Hedge funds are crazy about it From Techinsider.net: Apple Inc. is still the most popular stocks among hedge funds. According to a recent report by hedge fund tracking site Insider Monkey, more than one out of 5 hedge funds are invested in Apple Inc. At the moment there are

  3. Greenlight Re CEO says hedge fund reinsurance strategy buzz is validating[more]

    From Artemis.bm: The attention being paid to the hedge fund reinsurance business model and the fact that others are now looking to leverage bits of it within their own strategies, is validating for reinsurer Greenlight Capital Re, according to CEO Bart Hedges. There has been an increasing buzz

  4. Legal - Hedge fund manager fights £8m tax tribunal ruling[more]

    From FT.com: A hedge fund manager who may have to repay £8m in tax is trying to overturn a tribunal ruling that found he had attempted to shelter millions in an avoidance scheme. Patrick Degorce, chief investment officer at Theleme Partners, lost a tax tribunal case last year. HM Revenue & Customs c

  5. Europe - Hedge funds face exit tax as Iceland central bank discusses plan[more]

    From Bloomberg.com: Hedge funds and other creditors with claims against Iceland’s failed banks face an exit tax as the island looks for ways to unwind capital controls without hurting the economy. The government targets having a plan it can present by year-end that would map out how Iceland will sca