Investors looking at alternative investments want transparency, risk management -Singapore
By Pamela Almeda,
SINGAPORE : Alternative investments are becoming more mainstream amid the current market volatility. Market watchers have said they are seeing a growing number of investors park their money into hedge funds, private equity, real estate and infrastructure funds.
According to a survey by PricewaterhouseCoopers (PwC), investors are now more cautious. Other than performance, they are weighing other factors such as transparency and risk management.
Amid the volatility in the market, institutional investors are re-looking their portfolios.
According to the global survey by PwC, 41 percent of the respondents said that over the next three years, they will increase their asset allocation to real estate, 40 percent to private equity, 35 percent to commodities and another 33 percent to hedge funds.
But because returns are also expected to moderate starting this year, these investors are now more cautious as to where they are parking their money.
Justin Ong, Partner, Financial Services Industry Practice, PricewaterhouseCoopers, said, “For Asia, a lot of the interest is actually on things like private equity and real estate, and more interestingly, infrastructure funds is something which is of very good importance to Asian investors as compared to the global investors.
“Performance clearly is…one of the key things. But I think what’s probably most surprising for the managers is that when it comes to deselecting them from an investor’s list, the quality of the compliance function and quality of transparency is very key and actually ranks above performance.”
41 percent of the investors rated transparency as well as compliance and risk management higher than performance.
But PwC noted that most investors were not so clear as to what exactly they are looking for in terms of risk management.
Mr Ong said, “I think there’s a lot of interest in risk management per se, but I think if you dig deep into what risk management really means and what they’re looking for, I think there’s still a lot of discussions about what that really means for them.
“I think what they should be focusing on is not just in terms of the performance of the fund or the portfolio risk, but they should be focusing on things like the operational risk…the IT risk behind how the fund manager is actually working for them and the kind of controls that they have in place for them.”
PwC said that best practices from the developed countries like US and Europe are seen as key examples to follow.
Mr Ong said, “I think for Asia basically, because the market is relatively new, a lot of best practices have not come in yet. But you (would) expect that what you have in the US and European markets, like independent boards, properly documented valuation policies and investment strategies, focusing on how they outsource their functions and how they monitor functions, is a key part of what investors are looking for going forward.”
PwC said that fund managers or investment providers need to communicate their operational infrastructure and risk management strategy to clients.
Mr Ong said, “It does improve the way investors are getting the comfort from the managers, and therefore are more willing to give them more funds.”
The poll surveyed some 226 institutional investors and alternative investment providers worldwide - of which 34 percent were from Asia-Pacific. - CNA/ms
Source : Channel NewsAsia - 26 March 2008
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