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A conversation with NTUC Income CIO Peter Heng

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Established in 1970, NTUC Income’s mandate was to provide affordable insurance for workers in Singapore. As a social enterprise, it has the mission to provide value for customers above maximising profits for shareholders. Today, it is the leading composite insurer serving over 2 million customers with about 3.8 million policies.

What is your investment mandate? Heng: The investment mandate is to match the return requirements of the liabilities of the insurance business, which in the case of the Life Participating Fund is 5.25%, while minimising the downside.

What is the overall long-term return target? What is your outlook for the market in the next 2 to 5 years and where would you invest? What do you see as challenges in the current low interest rate environment?
 Heng: The long term return target depends on the business line. For the Life Participating Fund, it is 5.25%. We expect financial markets to show moderate returns compared with the past 10 years, with significantly increased volatility.

We believe inflation will be a major factor in the next five years. Given the current monetary policy initiatives worldwide, higher interest rates will affect financial markets negatively. In this environment, we expect bond markets to do poorly. We expect equities and property to outperform bonds. We are overweight equities and will continue to do so. We will increase our alternative exposure, in particular to property.

What percentage of the portfolio is managed internally and what percentage is invested internationally? Do you use external fund managers and what is the frequency of your strategic review?
 Heng: Over 85% of the assets are managed internally and almost 20% are invested internationally. We make use of both active and passive external managers for our global equity and fixed income allocations, while managing the Asian and Singapore portions internally.

Our external managers include PIMCO and Wellington Management for our global fixed income mandates and MFS and Vanguard for our global equity mandates. We review the managers on a yearly basis. Monitoring of performance is carried out monthly.

There is a growing trend towards alternative investments, what is NTUC Income’s view in terms of risk and rewards in the asset class? Do you manage the asset class in-house?
 Heng: Our current exposure to alternatives is 8.8%, which includes 6.7% in properties largely in physical assets in Singapore. We have been investing in properties for a very long time. We have investment managers looking after both these asset classes.
The risk reward characteristics for property suits the insurance funds very well, given its lower volatility and returns which are comparable to equities. We are looking to increase our exposure to both properties and private equities.

What lessons have you learned from your experience of investing through different market environments? What advice would you give to institutions that are just beginning to look at managing their risk better? 
Heng: For an insurance company, capital is very important to help it ride through periods of uncertainty and not having to reduce exposures to risk assets, when these markets are declining sharply.

Equally important is managing any downside volatility, to maintain solvency of the business. Hence asset allocation is critical and investing in asset classes that are less volatile is preferred.

What is your outlook of the insurance market, which includes life and general? Where do you see growth and what is your view about overseas expansion?
Heng: As a social enterprise founded to serve the Singapore population, NTUC Income will continue to focus on the domestic market. We expect growth in the insurance market to be in the mid-single digits, in particular the life insurance market, given the still generally low levels of coverage for most Singaporeans.

                                            S$m               %

Public Equities                   5,329            18.57

Alternative Investments        568             1.98

Fixed Income                    18,218             63.50

Real Estate                         1,617             5.64

Cash and Equivalents      2,308             8.04

Others                                      650             2.27

Grand Total                        28,690           100.00

 

 

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