Asia Pacific Media Coverage 14 September 2016 Hong Kong Institutional Investor: The 2016 Asia 100: Eyes on China and South Korea The article noted that fund managers are looking to mainland China s economy for direction after sharp declines on major stock exchanges have hit the industry. It noted Kevin Anderson, head of investments for the Asia Pacific region at SSGA, as commenting, We have a fragile global economy and demographic shifts around the world that influence how people are thinking about savings and investments. o Anderson also warned that sluggish growth and low to negative interest rates in many major economies look likely to persist, possibly for years to come. In this environment, we think it is important for investors to aggressively pursue greater risk adjusted returns, he said, adding that he expects equities to outperform government bonds in the second half of 2016. In all cases, there is a need to create a framework which not only takes into account return objectives but also downside risk tolerance. o It also noted that SSGA managed to grow its assets modestly in Australia and across Asia in the 12 months ended 31 March. AsianInvestor (September Issue Online): Hedge funds back in favour with asset owners: State Street The article noted that Asian institutions are set to raise their exposure to the asset class. It quoted Effie Datson, global head of product for alternative investment solutions at State Street, as saying that some very large Asian institutions expect their alternatives allocation to rise from around 5% to 20% over three to five years. She said that if the trend continues, the bulk of that increase is likely to go into private equity and possibly also real estate or infrastructure, but if the hedge fund allocation were to rise from 2% to 6%, that would represent multiple billions of dollars, she added. AsianInvestor (September Issue Online): Institutional money The article noted that Chinese hedge funds are looking outside of the region to source institutional funding, while institutions will only invest into Chinese hedge funds if they believe in their strategy and feel that the fund can demonstrate decent returns. The article quoted Effie Datson, global head of product for alternative investment solutions at State Street, as saying, Based on anecdotal evidence, Asian institutional investors expect net returns for a hedge fund portfolio broadly in line with global standards of around 6% to 7%. Ignites Asia: Korea's KIM seeks subadvisors to diversify menu The article reported that Korea Investment Management (KIM) is actively seeking subadvisory partnerships with foreign asset managers as part of its efforts to expand its overseas offerings. The article noted that KIM has a subadvisory partnership with SSGA, under which it launched the Korea Investment Management SS Global Asset Allocation Trust in June. STATE STREET CORPORATION 1
o It also mentioned that in terms of the fund, which invests in diverse assets globally, such as equities, fixed income, infrastructure, commodities and gold, SSGA offers KIM asset allocation guidance with downside risk protection, utilizing the firm s strategic and tactical asset allocation expertise as well as its proprietary risk management tools. The fund had KRW 15.5 billion (USD 14.11 million) in assets as of 9 September. STATE STREET CORPORATION 2
Full Articles Institutional Investor 2016-09-13 The 2016 Asia 100: Eyes on China and South Korea The years of easy growth for Asian asset managers, at least relative to their counterparts in other parts of the world, have come to an end. Now executives are looking closely at China to see if the country can maintain growth, stabilize its markets and project stability around the region. It was our most difficult year since 2008, says Cheah Cheng Hye, founder and co CIO of Value Partners, a Hong Kong based long short hedge fund firm with $13.6 billion in assets. The environment in our main market, which is China related equities, has been very difficult. So difficult, in fact, that the firm reported a 96 percent drop in net income in the first half of 2016, to 3.3 million Hong Kong dollars ($430,000). Weak markets and worries about growth are putting pressure on fund managers across Asia. Chinese stocks barely began recovering from the summer 2015 meltdown before taking another hit earlier this year, while investors in Japan turned bearish on Prime Minister Shinzo Abe s economic policies as growth slowed. The CSI 300 index of blue chips on the Shanghai and Shenzhen stock exchanges stood at 3,312 late last month, down 38 percent from a peak of 5,335 on June 12, 2015; at 16,737, the Nikkei 225 index of Japanese stocks was down about 19 percent from its August 2015 peak; and Hong Kong was flirting with bear market territory as the benchmark Hang Seng index was down 19 percent from its April 2015 high point, at 23,016. We have a fragile global economy and demographic shifts around the world that influence how people are thinking about savings and investments, says Kevin Anderson, head of investments for the Asia Pacific region at State Street Global Advisors in Hong Kong. The firm managed to grow its assets modestly in Australia and across Asia in the 12 months ended March 31. Sluggish growth and low to negative interest rates in many major economies look likely to persist, possibly for years to come, cautions Anderson. In this environment, we think it is important for investors to aggressively pursue greater risk adjusted returns, he says, adding that he expects equities to outperform government bonds in the second half of 2016. In all cases, there is a need to create a framework which not only takes into account return objectives but also downside risk tolerance. There are some bright spots away from equities, says Shane Oliver, chief economist and head of investment strategy of AMP Capital. The Sydney based firm is Australia s fourthlargest fund manager with $119.8 billion in assets at the end of March. Defensive assets like bonds and yield sensitive assets like real estate investment trusts tended to do very well over the past year, he says, as did real assets like directly held property and infrastructure. Investors are keeping a close eye on China and South Korea for possible interest rate reductions, says Robert Rountree, global strategist for Eastspring Investments, the Singapore based Asian asset management arm of U.K. insurer Prudential. The firm boosted its assets under management slightly in the 12 months ended March 31, to $115.4 billion. Although conditions generally spell monetary stability for the rest of the year, the main exceptions are Korea and China, Rountree says. He expects the South Korean central bank to cut rates because economic growth looks set to undershoot official targets. The STATE STREET CORPORATION 3
prospect for cuts in China is less clear, he says, as the government balances its two policy objectives of maintaining growth and currency stability. Value Partners obtained a license to open a wholly owned subsidiary in China last year, and Cheah says he is optimistic about the potential there. A big part of my medium term strategy is to tap into China, he says. Deregulation and relaxation of capital controls are inevitable. The pace of reforms can slow down, but won t stop. In the not too distant future, I see China to have the biggest pool of savings in the world. It s the golden opportunity of a lifetime for a fund manager like me. Cheah also recently set up a Singapore office to sell funds offering exposure to Asian markets: Unlike when I started my investment career, Asia today is much more influenced by what s going to happen to mainland China because China has become the No. 1 trading partner for many markets in Asia. STATE STREET CORPORATION 4
AsianInvestor (September Issue Online) 2016-09-13 Hedge funds back in favour with asset owners: State Street Hedge funds have suffered a lot of bad press globally in recent years, amid outflows, disappointing performance and concerns over fee levels but Asian institutions are set to raise their exposure to the asset class, according to industry experts. Some very large Asian institutions expect their alternatives allocation to rise from around 5% to 20% over three to five years, said Effie Datson, global head of product for alternative investment solutions at State Street. If the trend continues, the bulk of that increase is likely to go into private equity, and possibly also real estate or infrastructure, London-based Datson said. But if the hedge fund allocation were to rise from 2% to 6%, that would represent multiple billions of dollars, she added. Certainly, Seoul-based institutions such as Korea Post and National Pension Service have been ramping up their hedge fund exposure recently the latter for the first time. The first half of the year saw net outflows from hedge funds globally of $23.3 billion, according to Hedge Fund Research Inc (HFRI), but some investors redeemed far less than others found Credit Suisse s mid-year survey of hedge fund investor sentiment. Around a third (31%) of pension funds and a quarter of endowments/foundations said they had not made any withdrawals from hedge funds in the first half, as against 13% of family offices. Moreover, 86% of AsiaPacific investors said they would likely make allocations to hedge funds during the second half of the year. Sentiment is certainly improving on hedge funds in Asia, and asset owners are asking more questions about the asset class this year than last, noted Adeline Tan, Hong Kong head of investment advisory at Mercer. It s logical that Asian investors will raise their hedge fund exposure, because they are currently underallocated, accounting for only 8% of global hedge fund assets, said Ryan Korinke, head of the hedge fund platform at US asset manager Pimco. STATE STREET CORPORATION 5
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AsianInvestor (September Issue Online) 2016-09-13 Institutional money STATE STREET CORPORATION 7
Ignites Asia 2016-09-13 Korea's KIM seeks subadvisors to diversify menu Korea Investment Management (KIM) is actively seeking subadvisory partnerships with foreign asset managers as part of its efforts to expand its overseas offerings, according to Cho Hong-rae, the company s Seoul-based CEO. Established in 1974, KIM is the oldest asset manager in South Korea. It is the sixth-largest asset manager in the country, with W40 trillion (US$35.74 billion) in assets under management (AUM) as of September 13, according to the company. With 86 out of its 115 fund offerings being domestic-focused, the company is looking to diversify its product menu. I personally believe overseas investments should be done by foreign managers who understand the local market, Cho says. Therefore, I think teaming up with foreign managers is more efficient than building up an in-house investment team for overseas investments. As part of that effort, KIM hired Suh Jin-hee from Fidelity International Korea in April to head its newly created global business team. The three-member team s first action was to bring on Wellington Management as a subadvisor. KIM signed in May a subadvisory deal with Wellington and launched the KIM-Wellington Global Quality Equity Fund, as reported. The global equities fund focuses on the information technology, consumer discretionary and healthcare sectors and had W27.2 billion (US$24.76 million) in assets as of September 9, according to the fund s information page. Apart from Wellington, KIM also has a subadvisory partnership with State Street Global Advisors (SSGA), under which it launched the Korea Investment Management SS Global Asset Allocation Trust in June, as reported. For the fund, which invests in diverse assets globally, such as equities, fixed income, infrastructure, commodities and gold, SSGA offers KIM asset allocation guidance with downside risk protection by utilising the firm s strategic and tactical asset allocation expertise, along with its proprietary risk management tools. The fund had W15.5 billion (US$14.11 million) in assets as of September 9. In the future, Cho says, KIM hopes to build partnerships that are more engaged, such as those involving the exchanging of executives and co-management of funds, instead of just launching white-label products. Vietnam and China While KIM is seeking partnerships with foreign managers, the company is dedicated to maintaining and expanding its in-house investment capabilities for two specific markets: Vietnam and China. As for those two counties, there are not many managers who have a proven investment track record that we could possibly consider partnerships with, Cho says. That s why we decided to build in-house investment capabilities for those two countries. STATE STREET CORPORATION 8
KIM established offices in Ho Chi Minh City and Shanghai in 2006 and 2008, respectively. It currently has nine researchers in Vietnam and eight in China, according to Cho. In December 2009, the company was granted US$150 million in qualified foreign institutional investor quota to invest in China. KIM currently manages 11 Vietnam-focused funds with a total of W420 billion (US$382.41 million) in assets as of September 6. The company also runs six China-focused funds, including two exchange-traded funds (ETFs), with collectively W200 billion (US$182.1 million) in assets. Among its Vietnam-focused funds, the Korea Vietnam Growth Fund is the largest with W132.6 billion (US$124 million) in assets as of September 6. The fund, which invests in Vietnam-listed large-cap stocks that have growth potential, is KIM s first Vietnamese equities fund, as reported. Meanwhile, the Kindex China Mainland CSI300 ETF is its largest China-focused fund, with W117.3 billion (US$106.8 million) in assets as of September 6. The ETF, which was listed on the Korea Exchange in 2012, tracks the CSI 300 Index. STATE STREET CORPORATION 9