Home ListingOctober 31, 2013

Asia-Pacific Investors Dump Hedge Funds in Favour of Conservative Strategies

<em>Research from BNP Paribas Securities Services found Australian, Japanese, and Hong Kong investors favour risk budgeting when modifying their investment strategy.</em>

Reported by Featured Author

(October 31, 2013) – The financial crisis has forced Asia-Pacific institutional investors to become more conservative in their investment choices, driven by a greater focus on risk management.

BNP Paribas Securities Services’ research into the market found that 63% of the 27 pension funds, insurers, sovereign wealth funds, and other asset owners quizzed agreed the financial crisis has changed their investment approach, with 44% of investors adding their asset allocation had become more conservative.

Fixed income—or assets with fixed income-like qualities—was reported to be an area for increased investment as the region’s asset owners are attracted to the more stable cash flows and less volatile returns.

There was bad news for hedge fund managers too: it emerged that hedge funds were consistently avoided by respondents, following what they perceived to be “weak performance” and issues around fees and credibility in the region.

Incoming reforms are clearly being prepared for: 60% of the asset owners indicated that regulatory need for risk reporting had “some” or “significant” impact on their organisation, and three-quarters of them are planning on increasing their spending in this area in the next few years.

Risk budgeting—when the investor targets a total level of risk by splitting risk across the portfolio—is now more important for investors in Australia, Japan, and Hong Kong. These investors are seeking increased diversification and looking to introduce more environmental, social and governance factors into their investment strategies, the report said.

Madhu Gayer, head of investment reporting and performance for Asia-Pacific at BNP Paribas Security Services, said that while the Asian economies proved more resilient than most during the financial crisis, it was clear that 2008 was a watershed for asset owners in the area, prompting profound changes in their attitudes towards risk.

“They face a number of major challenges to integrating risk culture into their organisations,” he added.

“Data management, regulatory compliance, reporting, and talent management are all factors contributing to the overwhelming expectation from institutional investors in the region that spending on risk and performance measurement will rise in the next three to five years.”