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Asian investors cut back on outsourcing assets, Greenwich says

Timothy Inklebarger
Monday, October 5, 2009

Asian institutional investors outside of Japan curtailed their use of external investment managers in response to the world financial crisis, according to a Greenwich Associates study.

In the first quarter, 15% of Asian institutions outside of Japan planned to increase outsourcing of offshore assets, and 18% planned to use external managers to run domestic assets, according Greenwich’s 2009 Asian Investment Management Study. That’s far lower than in the first quarter 2008, when 92% planned to have more external managers run offshore assets, and 45% planned to increase outsourcing of domestic assets.

The decrease is the result of the performance of those investors’ internally managed portfolios being equal to or better than those run externally during last year’s financial crisis. Roughly 87% of Asia’s estimated $5 trillion in assets is managed internally as of the March 31, Greenwich said in a news release on the study.

“Due to their lack of equity exposure and the nature of their fixed-income holdings, internal portfolios held up relatively well during the market downturn,” Greenwich consultant Markus Ohlig said in the news release. “By contrast, Asian institutions have been much more likely to outsource equity investments, and as a result, they were much more likely to be disappointed by the performance of their external managers.”

The report’s authors were not immediately available for further comment, according to Greenwich spokeswoman Joan Weber.

Fifty-four percent of institutions surveyed said they plan to expand internal management by 2012. The trend is being driven by smaller and midsize institutions — 73% of institutions with externally managed assets between $250 million and $999 million said they plan to expand internal investment. For institutions with $1 billion or more, 47% are planning to expand internal management by 2012.

Also, in the first quarter, average fixed-income allocations among Asian institutional investors were up 6.1 percentage points from the first quarter of 2008 to 68.6%; equities were down 7.2 percentage points to 17.6% and the rest in other assets classes that were not defined.

Twenty percent of respondents plan to increase their cash allocation over the next three years, up from 6% in 2008. Survey respondents planning to increase allocations to private equity dropped 25 percentage points to 25%; those planning increases to hedge funds dropped 13 percentage points to 29%; and planned increases to real estate dropped 23 percentage points to 15%.

Interviews with 135 professionals at 18 of the largest institutions in Brunei, China, Hong Kong/Macau, India, Indonesia, Malaysia, the Philippines, Singapore, South Korea, Taiwan and Thailand, were conducted January through March.

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