LPs seek more internal expertise

LPs tend to believe in building internal investment knowhow, but retaining professionals can be a challenge, CIC told delegates at the FT Asset Management Summit.

Institutional investors should build internal expertise to help make and monitor investment decisions, delegates heard at the FT Asset Management Summit in Hong Kong.

Some internal capability ensures an organisation can implement its own strategies, said Kungsheng Fan, president of CIC International (Hong Kong), a subsidiary of China Investment Corporation. Fan was part of a panel themed “What institutional investors want and need”.

“You should have certain capability to evaluate the strategies and look at the risk aspect, especially to see whether those particular pieces fit into your framework. You might run into someone very capable who made a 120 percent return last year. But to see whether that fits into your framework you have to look into other statistics. You still need smart people inhouse.”

CIC has found it useful to employ internal professionals to help decide on large projects. 

You might run into someone very capable who made a 120 percent return last year. But to see whether that fits into your framework you have to look into other statistics. You still need smart people inhouse.

Kungsheng Fan
president
CIC International (Hong Kong)

“In the case of private equity or co-investment, most of that has been successful, and the larger projects have been commanded by our own team,” Fan said.

Eloy Lindeijer, chief investment manager at PGGM, the pension fund service provider for Dutch healthcare and social service workers that sold its interest in AlpInvest, said his organisation has focused strongly on growing internal management in order to drive down costs. 

“We’ve eliminated fund of funds players and we want to go much more direct in investing. Our investment organisation more than doubled in size to accommodate this trend of internalisation.”

Increasing internal expertise, however, leads to the question of compensation, said Naomi Denning, managing director of investment services in Asia for Towers Watson.

“The issue of attracting and retaining investment pros is a big challenge, particularly when many funds building these teams are government-sponsored funds and generally have less flexibility to design pay scales that are competitive,” she said.

“That very true,” added Fan, from CIC. He then joked that he had to borrow the tie he’s wearing. 

The issue of attracting and retaining investment pros is a big challenge, particularly when many funds building these teams are government-sponsored funds and generally have less flexibility to design pay scales that are competitive

Naomi Denning
MD investment services in Asia
Towers Watson

CIC has experienced trouble retaining high-level staff and the private equity team in particular has lost a raft of investment professionals over the past few years, Private Equity International reported earlier. 

The panelists also spoke about the difficulties of an investment environment being shaped by regulations and government policy. 

“The main challenge for us is to keep the return where it was,” said Lindeijer. “That requires us to look at new things like inflation-linked returns and that’s why we’re so interested in infrastructure investments and going the more direct route. But we will invest domestically. The closer those infra investments are to home, the better your understanding.”

Yong Ngee Ng, CEO of Tahan Capital Management, cited three “arrows” that will significantly impact on investing in Asia: The end of quantitative easing by the US; the reform and economic transition in China impacting on emerging markets; the big economic experiment in Japan, where government stimulus has goosed the economy and devalued the currency. 

“What if [change in Japan] doesn’t come?” Ng asked. “It’s not easy to invest in markets with a lot of policy intervention. We constantly have to look at these [issues].”