Despite being cautiously optimistic about the pickup of institutional mandates in 2021, managers in Southeast Asia, ex-Singapore, believe state pension funds will lead in terms of new mandate issuance this year, according to a recent report.
The report, published by Cerulli Associates, points out that institutional addressable assets in the Southeast Asian region grew at a slower rate, at 9.8%, to US$369.2 billion in 2020, lower than the 12.4% growth recorded in 2019.
Due to the Covid-19 pandemic last year, some institutions in the region have put the issuance of new mandates on hold, given the market uncertainty and change in market outlook. Some have opted to top up mandates with existing external managers instead of issuing new mandates.
However, some state pensions were seen resuming manager search and hiring activities, as well as issuing new investment mandates earlier this year. In February 2021, Malaysia’s Employees Provident Fund established what it said was the world’s first Shariah-compliant private equity direct/co-investment separately managed account fund, with an allocation of US$600 million. In March 2021, Philippines’ Social Security System opened the bidding process to hire nine local managers to manage three mandates—a balanced fund, a pure equity fund, and a pure fixed-income fund—worth 43.1 million Philippine pesos (US$897,000) in total assets.
Pension assets in the region have been growing steadily over the years, accounting for 33.4% of institutional addressable assets in 2020, the highest among all institutional types. In the region, Malaysia has the highest percentage of state pension assets outsourced to external managers, at 15%, in 2020.
Even as persistently low interest rates are prompting asset owners to reassess their strategies, target returns between 4% and 5% are seen by the majority, or 61.9% of managers, as realistic for institutions amid the low-interest-rate environment and Covid-19 pandemic. Managers surveyed ranked meeting targeted or future returns, as well as managing liquidity and risks as the top two key topics of discussions when engaging institutional investors this year.
Other key issues for managers engaging with institutional clients include environmental, social and governance (ESG) and alternative investments. Managers surveyed also ranked global equity and ESG-related strategies among the top five investment strategies institutions are looking for this and next year.
“With their diverse needs and risk appetites, we continue to see asset owners in the region issuing new institutional mandates in both the alternative and traditional spaces,” says Shannen Wong, senior analyst at Cerulli. “We expect them to continue leveraging managers’ expertise for global, alternative and ESG-related investments, as they diversify across strategies, markets and countries. A strong investment track record of institutional assets and brand reputation will be the two most important factors in winning mandates from institutions.”