Major asset owners in the Asia-Pacific region will invest their money in global destinations over the next five years, according to a new report, as they seek higher returns through diversification.
Fintech Broadridge’s 1H 2021 Institutional Client Opportunities Report from Fintech Broadridge released Thursday, May 27, said the regional asset pool for outsourced foreign investment is expected to be expanded by 58% to $ 9.3 trillion. by 2025, i.e. a growth rate of 9.6% per year. .
With those assets booming, outsourced investment in the APAC region is also expected to grow – at a slightly slower pace – by 9% per year to reach $ 18.5 trillion by 2025, according to.
The report’s forecasts are based on investment data from sovereign wealth funds, pension funds, insurers, official institutions and other large asset owners in 12 major APAC markets. This includes Australia, Greater China, Japan, Singapore, Korea, and other Southeast Asian countries
ASIAN ASSETS TRIUMVIRATE
The report found that asset owners in Japan, Korea and China were boosting APAC’s exposure to foreign investment. Japan alone accounts for 50% of outsourced international assets, according to the report.
For example, the world’s largest pension fund, the Japanese Government Pension Investment Fund (GPIF), had invested $ 450 billion in foreign bonds as of December 2020, both outsourced and in-house, up from 350 billion. billion dollars in March 2020.
Likewise, Korea’s National Pension Service (NPS) outsourced foreign fixed-income assets jumped 32% year-over-year to $ 22 billion by the end of 2020, Broadridge said in the report, without providing a breakdown on asset types.
GPIF managed 177.7 trillion yen ($ 1.63 trillion) in assets at the end of December. Holdings of foreign bonds hit a record high of 25.71% of GPIF’s assets under management in the October-December quarter, as the prolonged period of low interest rates in Japan caused the fund to abandon its portfolio. unprofitable domestic bonds in favor of higher yielding foreign assets.
NPS, meanwhile, plans to increase the allocation to foreign assets to 55% by 2025, from the current 37.5% of its total assets under management of W 860 trillion ($ 770 billion). Meanwhile, Korea Investment Corporation is stepping up investments in new technology, with its new office in San Francisco and a co-investment deal with Hyundai Heavy Industries, noted Evonne Gan, associate director of APAC Insights at Broadridge.
EYE FOR QUALITY
For other Korean institutional investors, Gan said AsianInvestor that it sees a growing interest in foreign bonds, private debt and infrastructure debt, with an emphasis on quality, low risk and regular income.
In China, Broadridge estimated that outsourced international assets are expected to grow by 11% per year over the next five years, without giving a specific value of the assets.
China’s share of international addressable assets – which refers to assets that are outsourced to external managers and invested outside of APAC – is expected to remain at around 20% of total addressable assets, which is significantly lower than the average of other APAC markets at around 60%. .
Evonne Gan, Broadridge
Gan said, “Nonetheless, the sheer size of the Chinese market will still translate into considerable revenue potential for fund managers, especially after regulators further relaxed overseas investment limits in 2020.”
These include the expansion of offshore investments from China’s largest institutional investors as well as the regular publication of new quotas for qualified domestic institutional investors (QDIIs), she added.
She noted that the China Investment Corporation (CIC), the National Social Security Fund (NSSF) and major domestic insurers have increased their offshore investments in recent years. She did not provide further details, saying their second half report would provide greater depth.
In Singapore, managers will continue to expand their offerings in the alternatives sector, private equity, private debt and infrastructure appearing on asset owner’s radar. Broadridge expects these fund managers to derive more income from alternative strategies than from equity and bond strategies over the next five years.
Meanwhile, asset owners in Australia have shown a keen interest in strategies related to insurance, real estate and natural resources, often with lasting layering, Gan said. AsianInvestor. There is also a demand for higher yielding debt instruments in regions like Asia and other emerging markets, she said.