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
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
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