SUSTAINABILITY IS THE FUTURE
Karine Hirn, partner, East Capital
“I’m here to make money, not ESG stuff,” is a comment I have heard in Hong Kong, and it is fair to say that Asia lags behind Europe in terms of awareness of environmental, social and governance (ESG) and socially responsible investing (SRI). But I believe that in the long run, companies that are best able to tackle changes in their environment will outperform.
The world needs to transition to a low-carbon economy. Significant private capital is required alongside public capital to achieve the United Nations’ Sustainable Development Goals by 2030, and less and less private capital will be willing to work publicly against these goals.
The world is changing even faster in Asia. We believe this transformation creates an interesting opportunity set for active investors. Passive managers will miss out as indices still look backwards, with the heaviest index weights reflecting the past, not the future.
Sector exclusions, so-called negative screening, is something we have implemented across all our portfolio since 2007. It’s a start, but not enough. We have new tools such as norms-based screening (controversy checks), engagement (proxy-voting, board composition, direct dialogue with companies) and ESG scorecards for portfolio holdings that help us pick stocks, determine our level of conviction and create value post-investment.
INNOVATE OR BE OBSOLETE
Ken Yap, managing director, Asia, Cerulli Associates
As global markets become rockier and more unpredictable, Asian retail and institutional investors share a commonality: they are chasing yields.
A survey of mass affluent and high-net-worth investors by Cerulli Associates revealed greater conservatism last year, with investors flocking to income-yielding assets, even as investment horizons shortened. Paradoxically, a majority across most Asian markets sought returns 5% above their respective countries’ one-year deposit rates. Meanwhile, institutions’ search for returns is prompting them to raise overseas and alternatives allocations.
Simultaneously, asset managers are facing a changing landscape. The key areas are passive funds and online distribution, including robo-advisers. In Asia, passive funds’ assets are just a fifth of actively managed assets. Yet, the actives-passives debate is heating up.
What’s the way forward for fund firms? They will need to innovate or become obsolete. Diversifying investment capabilities could be an option, as multi-asset investing looks here to stay. In addition, scale is becoming more crucial. Consolidation may be nothing new, but more factors are driving the need for it: passives, online distribution, fee and profitability pressures, rising compliance costs and stiffer competition.
EXPECT IPOS IN VIETNAM
Dominic Scriven, chairman, Dragon Capital
Vietnamese equities have been on a steady rise since 2012 and are at a nine-year high. The gains have not always come easily, as the capital markets have experienced some setbacks since opening up in 2000. However, Vietnam’s authorities were able to learn from those experiences, and have delivered on their ‘growth with stability’ agenda. Having become a more established market, Vietnam is preparing itself through legal and market reforms to be considered for inclusion in the MSCI Emerging Markets Index.
A particularly exciting feature of Vietnam’s development is its pipeline of initial public offerings (IPOs), brought about by the government’s rationalisation of the IPO process. Prior to 2009, prices of state-owned enterprises were set at unrealistically high book values, while providing little information on companies. The process today is entirely different. Companies come to the market in a more transparent fashion, at more reasonable valuations.
The direction of travel is clear. Vietnam is on its way to joining the ranks of the developed economies and its capital markets are progressing in tandem.
Indeed, the combined market capitalisation of its three exchanges has risen 67% from around $60 billion in early 2016 to just under $100 billion by the end of February 2017.
PENSION SCHEMES EVOLVE
Dan Waters, managing director, ICI Global
The effort to help citizens build adequate resources so that they may live dignified lives in retirement is both a high calling and a complex endeavour. As nations continue to add private pensions to their retirement systems, and particularly defined contribution systems, they have to consider their unique economic, historical, cultural and political situations.
I hope my panel will provide insights into how different nations are experiencing the evolution of retirement systems, including a somewhat inevitable shift from defined benefit plans to defined contribution plans, and the challenges and opportunities asset managers face as a result.
Will participation be mandatory or voluntary? Will the government provide tax incentives? How will investment options be determined? The ability of funds to help provide answers and solutions will depend on mastering many jurisdiction-specific nuances, making it a truly global issue.
PUT CLIENTS’ NEEDS FIRST
John McCareins, head of asia-pacific, northern trust
As an asset manager, the highest value we can provide is contributing to achieve better investment results, by serving as an optimal outcome enabler. For instance, we are developing a custom multi-asset, multi-manager portfolio for an Asian investor. It would be economically advantageous simply to use Northern Trust products. But based on our market views, the talent we see across investment peers, and a unique exposure need suited to our factor-investing expertise, only a custom solution meets the client where they are.
To take another example, we are hosting an event in Beijing for a specific industry group. In speaking with the prospective audience, it was clear that the greatest value would be to hear a range of perspectives and discuss topics that may not be a core capability for Northern Trust. Have we directed business to a competitor? Perhaps, but we have also served as an enabler for our clients to address what matters most.
©2017 funds global asia