The 2011 Pyramis Asian Pulse Poll, a survey of 95 institutional investors in Japan, South Korea, Taiwan, Hong Kong, Singapore and China, which cumulatively hold more than $1.1 trillion in assets, reveals that the top three concerns regarding their investment portfolios are risk management, volatility and a low return environment.
Institutions surveyed included pension plans, insurance companies, central banks and sovereign wealth funds. Interestingly, institutions in Japan are more than twice as concerned about volatility as other Asian institutional investors, and nearly four times as concerned as those in Europe.
According to the Pyramis survey, many institutions in Asia reveal they will consider uncorrelated or less volatile asset classes as a risk management technique for managing volatility. For Asia ex-Japan investors the top approach (61%) is diversifying into alternative asset classes, followed by using currency hedging techniques (55%).
In contrast, the most likely approach amongst Japanese institutions is increasing fixed-income assets (61%), followed by adopting a liability-driven investing approach (42%). Only 16 percent of Japanese investors say they are likely to use currency hedging techniques.
The greatest challenge Asian institutional investors face in the investment decision-making process is moving fast enough to take advantage of opportunities. According to the Pyramis survey, 47 percent of Asia ex-Japan investors say their greatest challenge is executing timely asset allocation decisions, compared to 35 percent for Japanese pensions and 36 percent for those in Europe.
According to the Pyramis survey, the top two changes Asia ex-Japan institutions are likely to make to their investment mix to increase returns are a greater use of: liquid alternatives (40%), such as long/short equity and global macro; and more aggressive sub-asset classes (40%), such as high yield and emerging markets equity.
Institutional investors in Asia expect to increase their allocation to regional investments in the next one to two years, while reducing exposure to developed countries. According to the Pyramis survey, 39 percent of Asia ex-Japan institutions expect to increase their domestic equity exposure.
Although Asian institutions expect to shift their exposures across different regions and markets, the Pyramis survey also finds that more than 60 percent of Japanese institutions have no currency hedging policy for equities in place, compared to 32 percent of Asia ex-Japan institutions.
According to the Pyramis survey, Asia ex-Japan investors say the greatest change to asset allocation in 10 years will be a shift to more global investments (28%) – both equity and fixed income. While Japanese institutions also see global allocations shifting (33%), they equally believe there will a significant shift towards fixed income and/or immunized strategies (33%).
