Executive Summary

The pool of total and outsourced institutional assets returned to growth in 2019 as equity markets recovered from their H2 2018 lows. The trend of asset owners allocating more towards equities and alternatives continued at the cost of lower allocations towards fixed income. Covid-19 reduced demand for credit risk, especially in private, real estate and infrastructure debt. Asset owners are also expected to increase holdings of cash and other short term investments. Large institutions continue to insource but mid-size and smaller institutional investors outsource more as they invest into non-domestic and more specialized asset class. This results in the business opportunity in Asia ex. Japan to gradually become less dependent on succeeding with a small number of very large institutions. In this context, demand for external managers remains strong with an increasing proportion of asset owners who have either hired or expect to hire a manager. Asset owners are also predicting they would use a higher number of managers in 3 years time supporting increased hiring activity. That being said, manager hiring sentiment declined (potentially temporarily) through Q1 2020 as Covid-19 related uncertainties increased. Given significant recent market volatility, asset owners find a manager’s brand strength, the capabilities of investment professionals and recent performance track record as the most influential hiring decision drivers, while potentially deprioritizing fee competitiveness in the short term. This however goes against the long term trend of reducing fees across traditional and alternative asset classes and increasing prevalence of performance fees.

Methodology

On an annual basis, from January to March, Greenwich Associates conducts in-person interviews in detail with the largest institutional investors in Asia. Senior fund professionals were asked to provide detailed information on their investment strategies, quantitative and qualitative evaluations of their investment managers, and qualitative assessments of those managers soliciting their business.