German pension funds are setting their sights on Asian markets as the long-term outlook for US assets is put into question by the US administration’s aggressive trade policy.
SOKA-BAU, the organisation overseeing pension funds in the German construction industry, is assembling a portfolio of investments in Asia to position itself ahead of the curve. The organisation is considering a scenario where the US downsizes while Asia expands in terms of GDP growth, said chief investment officer Gregor Asshoff at the Faros Asia Day event held in Frankfurt this week.
Bernd Franken, CIO of Nordrheinische Ärzteversorgung (NÄV), the €18.5bn pension fund for doctors in the state of North Rhine-Westphalia, added that the asset allocation shift towards Asia is clear.
America is on “a rapid path to [become] a totalitarian state,” said Franken, but the US market is still “wide and deep”. However, the Asian IPO and private equity markets are gaining traction, he added.
Oliver Lang, management board member of Kirchliche Zusatzversorgungskasse des Verbandes der Diözesen Deutschlands (KZVK), the €35bn pension fund for employees of the Catholic Church and charitable sectors, said that current developments in the US may be cause for concern, but much more needs to happen until this translates into a reallocation within its portfolio.
However, KZVK is closely monitoring events in the US, and has decided to overweight Japan, on the grounds that the East Asian country would be the winner in a trade war between the US and China.
Striving to reach allocation targets
SOKA-BAU aims to increase its overall allocation to Asian assets to 35% of its total portfolio, up from the current 12.7% level. Its global diversification strategy is based on weighting regional portfolio allocation according to GDP.
The organisation is pausing equities and bonds investments in China, while opting for a dedicated mandate to invest in Japanese equities, a strategically different market from other Asian ones.
It has been strategically looking for niche assets in developed Asian markets to add to its alternatives portfolio. For that reason, it is seeking managers with knowledge of local markets and with a track record of investing in those assets, and favours evergreen funds, according to the CIO.
NÄV targets a 30% allocation to the macro-region, up from the current 8% of total assets.
“Our Asian investments met our return expectations, not above other regions, but I am very happy because, looking at today’s situation, and at the uncertainties coming, you have a solid strategic pillar, that at least does not cost anything to me, and that is an incredible way to diversify allocations, that is why we invest in Asia,” CIO Franke said.
NÄV strives to reach an interim allocation target of 15% of total assets invested in Asia. It is working with pan-Asiatic managers to reach the target over a period of 15 years. The pension fund has doubled its Asia emerging market equity allocation, Franke added.
The India experiment
KZVK targets 10-25%, depending on the asset class, invested in Asia, from the current 8.52% invested in the region, Lang said. The fund is ramping up investments both in infrastructure and real estate in the region, as key building blocks in its portfolio.
The pension fund relies on proprietary regional qualitative and quantitative scoring models for equity investments in Asia.
“We underweight China compared to the value of GDP and market capitalisation, due to the specific risk situation in the market, and we overweight Japan,” Lang said.
It is also “experimenting in a similar way with the Indian market”, through a small mandate. The ultimate aim is to choose a manager to potentially increase investment in the country, Lang added.
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