Regional pension funds managing US$500 billion are deploying more capital with international asset managers, according to Pictet Asset Management.
The Swiss asset manager sees the trend as a silver lining to the weak oil price of the past two years, which led to a rise in fund redemptions.
That rise in international investments by pension funds around the region comes as sovereign wealth funds cut back on global investments to help plug deficits back home.
“We’re in a region obviously that relies heavily on oil for income and from an asset management perspective we rely heavily on excess cash from sovereign wealth funds specifically,” said Jamal Al Naif, the Middle East, Africa and Central Asia head for Pictet. “Along with sovereign wealth funds, however, you have an ever-expanding pension sector, which is less reliant on oil revenues.”
The banker said that these pension funds, which like sovereign wealth funds rarely disclose their assets or how much they manage to the public, typically bought into every regional initial public offering that was sold as well as local real estate.
In recent years, they have increased the allocation to investments outside of the region, branching out into assets that include emerging market stocks, international real estate and alternative investments including private equity and commodities.
Among the biggest state pension funds in the region are the Public Pensions Agency of Saudi Arabia and Public Institute for Social Security of Kuwait.
The Saudi pension fund is estimated to have assets valued at more than $100bn. And while asset managers are keen to get as much as possible of that money, it is unlikely that more than 50 per cent of it would be invested abroad, he said.
The growing appetite of pension funds to invest outside of their traditional hunting grounds contrasts with the retreat many of the sovereign wealth funds in the region have made from international markets over the past year.
Mostly as result of those redemptions, Pictet’s assets under management slipped by 30 per cent and even that came after an increase in money collected from Central Asia and Africa, Mr Al Naif said.
Pictet Asset Management doesn’t break out assets under management per region but all in all it looks after 162bn Swiss francs (Dh590.48bn) for investors around the world, a figure that is up by 8bn francs from last year.
And while last year there were heavy outflows from the region, Mr Al Naif said the number of requests from sovereign wealth funds and from big state institutions was growing again with an increase in requests for proposals, suggesting that the worst may be behind the fallout from the oil price crash.
Redemptions from sovereign wealth funds and institutions is not the only thing keeping asset managers in the region up at night. These bankers are also contending with lower fees as investors big and small shift cash into funds that track indexes and charge a fraction of the fees compared to those funds where managers pick and choose stocks and bonds.
The Abu Dhabi Investment Authority, one of the world’s largest sovereign wealth funds, has been among the large investors over the past decade to shift more money into indexing. The net result of a greater inflow into passive investment strategies and the increased competition has meant that asset managers like Pictet have had to lower their fees.
“You have a situation where there’s less money,” Mr Al Naif said. “There’s a lot of people chasing after less money. So you have people discounting fees to win mandates to a degree that if you don’t comply, you don’t play.”
mkassem@thenational.ae
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