When alternative asset managers look for investment capital, they increasingly turn to Asia. And for good reason: the headline numbers are a siren call.
Asia is home to seven of the world's 10 largest sovereign wealth funds. Its life insurance industry, and corresponding asset pool, are growing at more than four times the rate of Europe and eight times that of the United States.* The region accounts for seven of the world's top 20 pension funds and more than half the assets. And, those assets are surging, growing an average of nearly 39% annually in China and 15% in Singapore and Malaysia alone since 2005.** That all adds up to billions of dollars of fresh funds in need of investing.
While fundraising for alternatives is not easy anywhere, particularly in today’s volatile environment, the news from Asia is encouraging. Dig deeper and you’ll find, more important than the headlines alone, is that Asia's money managers are showing a greater appetite to venture up the risk curve in search of yield. Korea's National Pension Service, the world's fourth largest, is a good example. It's working to invest $4 billion into alternative assets outside of Korea this year, part of a plan to increase to 10% its portfolio exposure to alternatives from just 3.8% in 2008. A recent survey by alternative asset research firm, Preqin, found 95% of Asian institutional investors say they are at or below their target allocations to private equity. Nearly half plan to up investment in North America, a third in Europe and 17% in Latin America.
Global alternatives fund managers setting up dedicated marketing offices in Asia was just getting started when the global financial crisis flattened it in 2008/09. Since then, we have seen first a handful and, by the close of 2011, a parade of alternative asset managers working to set up and grow marketing and product support teams in Asia. Some have been successful, a few extremely so. But far too many are foundering, investing time and money with little hope of return. The attrition rate has been particularly high at brand name hedge fund platforms, who quickly find a New York or London-centric sales culture doesn't always resonate well with investors in Asia.
The key comes down to hiring the right professionals and giving them the required support, including time, team integration and the ability to get clients face time with top management from HQ. It sounds simple enough. But the market for proven capital formation talent is thin in Asia. The best candidates are often not obvious, nor easily converted. In our experience, the right candidate combines two core attributes: relationships with a significant and relevant investor base and detailed knowledge of the asset class, fund strategy and the credibility and gravitas to communicate that to clients.
The flow of capital from East to West is just getting started. Moving forward, striking the right balance between those two core attributes will increasingly require alternative asset managers to think laterally when hiring. They will need look at platforms and business beyond just their direct competitors to secure the talent that can deliver the numbers behind Asia’s bright headlines.* Ernst & Young, Asia Pacific Insurance Outlook, 2011. ** Towers Watson, September 2011.