South Africa’s Government Employee Pension Fund, GEPF, the R2.2 trillion ($116 billion) defined benefit fund for the country’s public sector employees, is in the process of readying its investment processes for a new law that will allow people to draw down some of their retirement income early.

The Revenue Laws Amendment Bill and the Pensions Fund Amendment Bill still need to be signed into law by South Africa’s President, but GEPF is busy preparing for a September 2024 kick-off.

Beneficiaries’ pots will be split into two components comprising a savings element (one third of their pensionable service) from which people can tap a capped amount annually, alongside a larger, invested component which can’t be withdrawn until retirement – or death.

“People will only be allowed to make one withdrawal every tax year from the savings component and whatever they withdraw is treated as additional income and taxed,” says Brian Karidza, head of benefit and actuaries at GEPF.

On one hand the legislation has come under fire for using pension funds to solve societal problems. Critics argue that retirement funds should only be used for retirement, not for supporting people through COVID and its aftermath, the cost-of-living crisis or bouts of unemployment, warning the policy will foster a long-term retirement shortfall.

Others believe it could solve a pervasive trend in the country that sees cash-strapped beneficiaries resigning from their jobs to draw down their pension ahead of retirement. On average, people change jobs seven times in their working life, each time cashing in their pension before they start saving again from scratch in a new job. The problem is most prevalent in private sector pension funds rather than South Africa’s large public sector funds like GEPF, Transnet and the Post Office.

“The only way people will be able to access the retirement element of their saving is by reaching retirement age. The introduction of a savings pot allows people to access their pension without needing to exit the fund, and introduces compulsory preservation for the first time,” says Karidza. “The hope is it will result in the average member being better off because they will actually retire with a larger portion of saving than under the current system.”

Sifiso Sibiya, head of investments at GEPF is confident the changes won’t significantly change investment strategy at South Africa’s biggest pension fund. GEPF doesn’t need to adjust the amount of liquidity it holds because there is a cap on the maximum amount people can withdraw. The fund’s 1.2 million active members could all, potentially, request a drawdown but the fund’s 0- 2 per cent allocation to cash, plus monthly net contributions, would be able to absorb the liquidity calls.

“We won’t need to liquidate any investments, and in the short term it won’t have a significant impact on investment strategy,” he says.

But that doesn’t mean there aren’t other complications to navigate. Sibiya warns that if the government increases the R30,000 cap (the amount has changed several times) things could get a little more complicated. “Until it is settled and acted into law, it becomes hard to get our hands around it. We are trying to plan but there are many moving parts – it is like shooting at a moving target.”

He is also concerned that liquidity calls from other pension funds acting on withdrawal requests at the same time could drain liquidity from the capital markets and create volatility. “GEPF has 80 per cent of its assets invested in South Africa,” he says. “If pension funds sell huge bond tranches it will effect the yield curve.” He believes that smaller funds, with a high number of active members, are most at risk of having to change their asset allocation and hold more liquid assets to meet withdrawal requests.

Some industry protagonists envisage  GEPF running two investment strategies. One for the savings pot and the other for long-term retirement. But Sibiya favours maintaining the current consolidated approach – just  growing the allocation to cash.

“Running a separate strategy for each component will reduce economies of scale by introducing smaller mandates and higher fees,” he says. “It would be better to hold still and just adjust the cash allocation and have larger mandates.”

He is wary of the impact on returns from holding a larger allocation to liquid assets. But hopes that as the new system beds down, beneficiaries’ retirement buckets will ultimately grow bigger because they will be free from the damaging impact of withdrawals that plague the current system. “Our long-term view is that illiquid investments will grow which from a developmental point of view and looking at the needs of South Africa’s infrastructure investment, is positive.”

Preparing for the new system has absorbed huge amounts of time. None more so than readying GEPF’s back-office processes to meet withdrawal requests on time. “The worst-case scenario is if we get 80-90 per cent of our membership coming forward. This would would increase the number of payments that need processing by 10-fold,” says Karidza. “The timing is very tight considering we are still trying to understand the implications.”

 

CalPERS is considering tying the incentive pay of its staff to meeting climate KPIs. For now, the $485.3 billion Californian pension fund continues to monitor trends among peer funds in this area. But in a recent board meeting, members discussed how integrating climate change and environmentally focused performance metrics into CalPERS’ annual incentive plan will likely make board level discussion soon.

Executives from Global Governance Advisors, GGA, CalPERS’ compensation consultant, pointed out that more asset owners are starting to use pay to incentivise staff to hit climate targets. Speaking in a recent board meeting, they said metrics could include climate disclosure and reporting, or allocations to low carbon assets.

“As your advisor we are keeping track of this and when it gets to the point where we can establish what metrics might look like from an operational perspective, we can review it as a committee,” said Brad Kelly, partner, Global Governance Advisors.

CalPERS board members responded to the idea with enthusiasm. “In our proxy voting we hold companies responsible and ask them to report and hold their higher- ups accountable to environmental standards. It’s a good idea,” said Theresa Taylor, president of the board.

Current performance metrics at the pension fund cover investment performance (both from a returns and cost perspective) as well as customer service and stakeholder engagement. However, unusually, CalPERS doesn’t place any weighting on asset class investment performance – investment performance measures remain solely based on total fund results.

GGA suggested that CalPERS new chief investment officer, Stephen Gilmore, who joins the fund this July from New Zealand Super, may want to review the current structure and consider the addition of an asset class investment performance weighting in the annual incentive formula for investment staff. Not only will this put CalPERS more in-line with its public pension fund peers. It will also create alignment between pay and performance within the investment team.

“Over time, CalPERS should look to phase in more weighting towards asset class performance with a corresponding decrease in total fund performance for these team members,” GGA suggested.  “A lack of weighting on asset class investment performance within the annual incentive formula for investment professionals working within a specific asset class is the biggest misalignment we see to current best practices.”

CalPERS moved toward a total fund approach in fiscal year 2019-2020 in a bid to break down silos and encourage the investment office to work together. CalPERS also focuses less on alpha generation than typical pension funds in the marketplace. But it has led to a misalignment in today’s competitive hunt for talent which notably includes funds such as CalSTRS.

“Incentives should always retain a strong link between performance expectations and elements that participants have connections and influence in enhancing,” said GGA. “If all investment professionals are rewarded solely on total fund performance, there is much less ability to differentiate between higher and lower performers on the team or recognize and reward certain asset classes that have materially or disproportionately contributed toward the positive performance of the fund.”

Another way to introduce a total fund metric could be via Long-Term Incentive Plans (LTIPs), they suggested. Focused on forward-looking total fund investment performance over three to four years, typically, this model helps align investment and executive staff toward earning a meaningful LTIP payout at the end of each extended performance period.

“Our opinion is that CalPERS’ LTIP will have this impact going forward as it begins to annually complete the associated long-term performance cycles and provide the potential to generate additional payout opportunities for eligible plan participants.”

Quantitative v qualitative

GGA also suggested CalPERS consider linking incentive pay to more quantitative factors.

“Since the commencement of our engagement with CalPERS, GGA has fielded concerns that too much weighting is placed on qualitative performance within the CalPERS incentive plan, which is tougher to measure, and reward, realized performance. As well, truly qualitative measures can possibly increase headline risk because it is often associated with subjective judgments which can also open the fund up to criticism and increased levels of scrutiny.”

Typically, market practice sees incentive pay in investment positions weighted 70- 75 per cent to quantitative performance with no more than 25- 30 percent weighting allocated to the qualitative performance of the individual in their role.

“An adjustment to increase the weighting on quantitative performance would better align these positions with the market, including CalSTRS,” they concluded.

For the team at the administrative office of Dutch asset owner PWRI, the €10 billion pension fund for people with disabilities, the country’s transition from defined benefit to a new defined contribution pension system is all-consuming. PWRI will transition at the start of 2025, although the deadline for the €1.45 trillion ($1.6 trillion) industry to transition  isn’t until January 2028.

Imke Hollander, senior advisor to the board’s investment committee, lists a complex process ahead of the deadline that includes frequent modelling of how the new portfolio will look; time-consuming board approvals for every change to ensure everyone understands, and long meetings with different stakeholders including unions and employers.

“Communication is the really hard part,” she says.

Political uncertainty has also been injected into the process following last year’s elections, and Hollander believes there is now a chance that policy makers might change course. Another element of jeopardy includes service providers readying their systems by the deadline. Like APG, PWRI’s pension administrator, which must provide changes to its software and administrative systems in time, ensuring this side of the process, including all data and formatting, connects to their investment managers.

One reason for the transition to a new DC system is to encourage the country’s pension funds to invest more in risk assets. Retirement income promises under the DB system will be replaced by a new system tied to contributions and investment returns.

While many funds are preparing to invest more in equity, Hollander says PWRI’s asset allocation will not change much. Mostly because the fund is on a de-risking trajectory because it doesn’t have many young participants joining (although it is still open) plus the fact it already has a 50 per cent allocation to equity and real estate.

Although she expects a deeper division between the portfolios serving PWRI’s different demographics, she is not expecting much change. “We won’t be investing more in equity and other more risky assets. Having half the portfolio in those assets, is already pretty risky,” she says.

A bigger impact from the transition will be felt in PWRI’s hedging policy. Like many other Dutch funds, PWRI has seen its solvency ratio improve off the back of higher interest rates and is now seeking to lock in those benefits before the transition. Increasing the hedging position in the short term protects against a reduction in the solvency ratio if rates go down, she explains.

PWRI currently hedges over 60 per cent of its liabilities, up from 30 per cent a few years ago. “Now interest rates look steadier we’ve decided to increase our hedging levels and de-risk to make for a smoother transition,” she says, adding additional hedging will be done via swaps. In January 2024 PWRI had a coverage ratio of 123.3 per cent

The transition is also adding a layer of complexity to decisions to invest more in illiquid assets. PWRI has room to invest more in assets like infrastructure, but she says the board is wary of doing so at this juncture. These types of assets will be more difficult to value in a new DC world where participants will want to know what they own, and how much they can expect in retirement, she says.

Moreover, the team is too busy to consider partnerships with other investors, something that could help PWRI, a relatively small fund, access these types of investment and build on successful allocations that resonate with beneficiaries. “I don’t know if we are large enough to expand our investment in infrastructure. You need to make large investments in these types of assets. There are ways to do it with others, but this is not the time.”

Preparing for the climate transition

PWRI is also focused on the other transition shaping institutional investment. The climate transition continues to push the portfolio in particular directions. For example, the board are reconsidering the role of convertibles because they haven’t done as expected. Sitting between equity and fixed income, this allocation was not as much of a downside buffer as hoped, and it has been difficult to integrate ESG into the convertibles portfolio.

“It’s hard to get the ESG scores right and have enough performance.  I’m sure people out there can do it, but in the last couple of years, convertible bonds haven’t worked as expected for us.”

Hollander is currently helping the board to explore how best to reduce emissions in PWRI’s high yield allocation in line with a recent commitment to achieve net zero across asset classes. The team have made progress in global credit and equity where it uses discretionary mandates to ensure ESG integration. But integrating net zero in high yield is complicated by the lack of data and the fact reducing emissions in the portfolio directly impacts performance. “We only have data on a very limited amount of the portfolio, and engagement is difficult,” she says.

And PWRI isn’t just worried about climate scores in high yield. It also needs the social scores of the underlying companies in the allocation to improve. It has developed its own restrictions on which companies it invests in, which it implements helped by fiduciary manager Columbia Threadneedle in a decades-long relationship. “As the biggest customer in a number of their funds, we have been able to introduce bespoke restrictions,” she says.

PWRI’s investment beliefs, reduced to five from ten in 2022, seek to guide the team on how best to balance costs, performance, and sustainability so that ESG doesn’t cost too much, or dent returns. The team hope it has hit this sweet spot in the move from active to semi-passive in equities. Using two managers across developed and emerging markets PWRI has given up some upside potential because the strategy isn’t wholly active, but the approach follows a benchmark which the fund developed with ESG-restrictions and only costs a few basis points in fees.

Still, beliefs do come at a cost. PWRI has wound down its private equity allocation because of a lack of transparency in the asset class and double fee layers. Although it still has around 1 per cent of the portfolio in private equity, it won’t invest more.

As the conversation draws to a close, Hollander reflects on the biggest winners of the Netherland’s transition to a new pension system so far. It might turn out the new system is cheaper, but the costs are mounting up, mostly in fees to consultants. For a pension fund enduringly mindful of fees and the impact they have on beneficiary returns, advisor fees is a growing source of angst. “Consultants are doing very well out of this,” she concludes.

 

LACERA, Los Angeles County Employees Retirement Association, is reducing its allocation to growth and real assets – namely global equity and real estate – and titling to allocations with a more moderate return potential and stronger downside protection comprising investment grade bonds and hedge funds particularly.

The latest changes at the $77 billion pension fund reflect a shift in thinking from previous asset allocation reviews. In recent years, LACERA has steadily put more assets to work in illiquid private credit and private equity in the hunt for returns during decades of historically low interest rates.

Now the focus is on reacting to higher interest rates and downside protection, with CIO Jonathan Grabel warning the board that the relentless climb in equity markets in recent quarters is “unsustainable.”

Working with consultancy Meketa Investment Group, LACERA staff outlined to the board how the “modest” changes (implemented within the next two years) are projected to reduce potential losses while continuing to meet LACERA’s 7 per cent target return. Modelling of the new allocation revealed a slightly higher Sharpe ratio expectation (0.42) when compared to the current policy allocation (0.41) representing a modest improvement in risk-adjusted return expectations.

The team modelled the new allocation on historic and theoretical scenarios including the GFC and COVID recovery; 10-year Treasury bond rates rising 300 bps and US equities declining by 40 per cent, as well as different climate scenarios. The process highlighted the key risks to the new allocation remain equity market decline and any widening of credit spreads.

Risk mitigation becomes a priority

LACERA’s risk mitigation portfolio, tasked with reducing risk by providing liquidity, diversification, and downside protection, comprises cash, investment grade bonds, long term treasuries and hedge funds. It has the lowest risk and lowest return target of all the portfolios in the fund – accounting for around 19 per cent of total AUM but just 3 per cent of total risk.

Grabel explained that diversification has becoming increasingly important as the pension fund has matured and benefit payments exceed contributions. “Losing money has consequences when you are cash flow negative,” he said.

The hedge fund allocation (set to grow from 6 per cent to 8 per cent) comprises diverse strategies across all asset classes, and is tasked with reducing total fund risk with low to moderate volatility and zero correlation to stocks and bonds: neither interest rates nor growth drive returns. The absolute return approach is less risky and less directional compared to many hedge fund portfolios, and the focus is on risk metrics rather than a single return number, the board heard.

Recent results show an equity beta reading of 0.00 and positive up/down capture, explained Chad Timko, senior investment officer.

LACERA currently invests with eight direct managers and each manager has several sub strategies. An emerging manager programme, launched in 2021 and with a net asset value of $539 million is managed under a separate account and part of a reserve manager pipeline.

The emerging manager programme has underperformed its benchmark but preserved its capital while outperforming investment grade bonds.  Revenue sharing is structured into most mandates and Timko observed how several managers stand out as potential future graduation prospects to the main portfolio based on early positive performance.

“Manager graduation are goals of the programme,” he said. LACERA will continue to increase the size of its emerging manager program towards the board-approved target of 15 per cent of the total hedge fund portfolio.

LACERA currently has around $1 billion in cash, used primarily to pay benefits and rebalance; invested in a separate account that is managed by State Street. The board heard that levels are slightly up on target on account of rebalancing and recent capital calls.

A cash overlay programme, put in place in 2019, has contributed to nearly $500 million in gains. “Better managing cash and adhering to our SAA and rebalancing the portfolio, paid for one year’s operating budget and one month’s worth of benefit payments,” said Grabel.

Other allocations in the risk mitigation portfolio comprise investment grade bonds, set to grow to 13 per cent from 7 per cent under the new asset allocation reflecting their value and return. The low risk, low expected alpha investment grade bond allocation is split between passive (70 per cent) and active (30 per cent.) Two active managers follow a core bond strategy, take low active risk and don’t’ invest in any sectors not included in the benchmark.

An allocation to long-term treasury bonds was added three years ago to hedge the growth portfolio and negatively correlate with stocks. The allocation is wholly passive, managed by BlackRock and comprises 80 bonds with maturities between 10-30 years.

“The rise of interest rates in 2022 had a material negative impact on long term government bond returns,” said Vache Mahseredjian, principal investment officer.

China Risk rises up the agenda

LACERA’s new asset allocation also modelled the impact of removing the fund’s exposure to China in response to rising geopolitical and regulatory risk. China exposure is mostly found in the passive global equity allocation, and excluding China from the emerging market category doesn’t change the risk return characteristics of the portfolio.

The board voiced concerns regarding the speed with which it will be possible to divest from China – and the fact the analysis is based on companies domiciled in China, and doesn’t take into account the risk of holding companies with China-based supply chains, or sales derived from China.

“It’s easier for us to adjust our portfolio than for [say] Apple to change how it manufactures and sells [it’s products],” concluded Grabel.

Up until very recently, ‘DB pension schemes’ and ‘surplus’ were not phrases often heard in the same sentence, says Morten Nilsson, chief executive of investment manager Brightwell which manages the assets of the £47 billion British Telecom Pension Scheme, BTPS, one of the largest private sector defined benefit schemes in the UK

But thanks to rising interest rates making it cheaper for these schemes to meet the costs of their pension obligations, recent figures from The Pensions Regulator (TPR) reveal that out of around 5,000 defined benefit (DB) schemes in the UK, over 3,750 are now in surplus on a low dependency basis with a further 950 schemes approaching surplus.

Writing in a recent posting on Brightwell’s website, Nilsson calls the aggregate surplus totals of £250 billion, roughly 17 per cent of total DB assets, “staggering.”

“With such eye watering figures, it’s not surprising that the government is consulting with the industry on how to put this money to use. HMRC analysis shows that just £180 million in surplus has been successfully extracted between March 2018 and March 2023. This is largely because most schemes are unable to access surplus except at ‘wind up’.”

During wind-up, employers offload their pension schemes to insurers who promise to pay employees’ retirement payments at a fixed level under so-called bulk annuity arrangements.

As schemes seek to complete a transaction with an insurer, they typically move out of riskier assets such as equities and into bonds.

But he believes the rationale of such large value transfers of returns and surplus from a pension scheme to an insurance company, when pension funds could stay in control, benefiting their sponsor, is under more scrutiny. “Many schemes are questioning whether buy-out is in fact the ‘gold standard’ or whether they risk ‘selling the family silver.’”

Nilsson continues that buyouts mean pension funds are taking money away from sponsors that could otherwise be invested in the UK economy – or wherever they operate. The new laws could allow pension funds to share the surplus subject to the “appropriate funding levels,” encouraging schemes to “invest for surplus in productive asset allocations.”

Still, barriers to any change of mindset are high, some of which are outlined in research by Mallowstreet which gathered analysis from 27 pension schemes with over £1 billion AUM. Like the fact surplus generation is not an objective for trustee boards. Schemes argue they are run to meet the promised benefits to members and protect their outcomes, not to increase the return to the sponsor.

Another challenge lies in the fact a surplus can swiftly change to deficit. Schemes could find themselves paying out surplus one year, and being underfunded the next.

“Scheme funding is only ever a snapshot in time and the recent volatility shows that some unhedged schemes can easily swing from deficit to surplus in a relatively short period of time,” he warns.

Moreover, the fact the majority of UK DB schemes are closed and mature means few want to introduce greater investment risk. They are largely adopting a cash flow matching strategy that reduces dependency on their sponsors and the DB funding regime has historically encouraged schemes to de-risk and focus on cashflow matching as they mature.

Nilsson concludes that if the government wants to increase pension scheme’s investment in “productive assets,” changing the rules around surplus is unlikely to make a difference. But he says providing more flexibility around surplus intuitively feels like a good thing.

Using the surplus to enhance DB or DC benefits, or as a volatility buffer, could be attractive. Making it easier for surplus to be returned to sponsors may be helpful in giving them greater comfort on avoiding risks of overfunding. It could also allow greater investment in their own business priorities – productive finance in a more direct way. From the trustee perspective, it could provide the ability to make discretionary one-off payments to members.

Two of the biggest pension funds in the world, the Netherlands’ €532 billion ($565 billion) APG and Japan’s ¥227 trillion ($1.5 trillion) GPIF, have joined forces to invest in large scale infrastructure deals, with APG taking the lead. The move comes as APG Asia head Thijs Aaten tells Top1000funds.com he envisages more than half of the fund’s real assets will be invested in Asia to reflect global growth and opportunities.

An infrastructure co-investment deal with Japan’s ¥227 trillion ($1.5 trillion) GPIF is the latest in a throng of relationships that Dutch pension fund APG has entered with other funds to invest in large scale infrastructure and real estate, including Korea’s largest pension fund NPS, and New Zealand Super Fund.

The €532 billion ($565 billion) APG has extensive experience investing in infrastructure and will act as lead investor in the latest collaboration, selecting projects which GPIF, relatively new to investing in infrastructure by comparison, will be invited to join.

At the end of December 2023 GPIF’s portfolio was split roughly equally between equities and fixed income, although it does have an unlisted assets cap of 5 per cent including infrastructure (which is less than 1 per cent), noting that 5 per cent of GPIF is $75 billion.

APG sees many benefits to the collaborative model with other pension funds and is open to further expanding the number of “preferred partnerships” it has with other pension funds that have a similar investment philosophy and share the same views on sustainability.

Collaborative deals with like-minded partners to date include student housing in Australia and toll roads in Portugal.

APG’s Asia chief executive, Thijs Aaten, told Top1000funds.com in an interview that in addition to increased capital to invest, investing with other pension funds has implications for the investment structures and purpose of the investments because of an alignment of interest.

“We have quite a bit of experience in private investments and even though we are a decent size we occasionally run into a situation that some of the deals are too big even for us. Deals of €1 to €2 billion is sizable for us,” Aaten said.

“The idea is we want to team up with asset owner partners who have similar investment horizons, and don’t necessarily look for an exit. We might be enthusiastic to hold on to the asset, and often GPs want to exit, but for us it could become more of a core asset with a good income or an inflation hedge. With private equity partners there is not always an alignment of interest, so we expect to see that more with asset owner partners.”

Part of what makes APG an attractive partner is its large internal teams, with nearly 100 people on the ground in Asia an example of the depth of its operations. Some funds, such as GPIF, don’t have those large internal capabilities in private assets, making APG a natural and complimentary partner.

“What we do see is that there are more like-minded partners looking for this capability in Asia,” Aaten said.

APG has about 30 per cent of its portfolio in real assets, and Aaten believes over time up to half of that will be invested in opportunities in Asia.

“That’s where I feel that if you only have 10 per cent allocated in Asia that is not in line with fundamental economic activity,” he said. “The central gravity of the world economy is shifting to Asia. I don’t think everyone sees that or is willing to acknowledge it.

“I think it is obvious, and the statistics support it – like half of global GDP is from Asia, and it is a much larger amount of global growth. The US has a stronger capital market and is still growing, but Europe is not growing much.”

APG has offices in both Hong Kong and Singapore, and the team has doubled in size in the six years Aaten, who is headquartered in Hong Kong, has been running the region. Included in the 100 people employed across the region are 20 different nationalities, which Aaten said has been key to navigating the multitude of cultural nuances in Asia and has been critical to landing deals.

He points to a real estate deal in Hong Kong where the entire negotiations were conducted in Cantonese as an example of a deal that would not have been possible from the fund’s Netherlands HQ.

“There is a long way in the run up to these deals and certain ways of doing business in Asia, so you have to talk to companies, build networks, find trustworthy partners and establish that trust with your partners and you need an understanding of the culture. That is so important,” he said.

“It’s not just about numbers but lots of other things. Some cultures appreciate the Dutch bluntness, and some don’t. It doesn’t always make sense to send me in.”

Investments in Asia make up about 10 to 15 per cent of the entire APG portfolio with the team in Hong Kong managing infrastructure, including solar farms and toll roads; natural resources, such as a Tasmanian forest; real estate, which is the biggest allocation and includes both listed and unlisted assets across the region; a small private equity allocation, although the bulk of private equity is managed from New York; and a capital markets team that covers emerging market debt, including some Chinese fixed income, developed market equities in Japan and Australia, and global emerging market equities.

The investment team at APG is run as a global team and the investors based in Asia are integrated with teams in other locations, including Europe.

APG’s pension fund clients, including the giant ABP, work to a three-year strategic asset liability modelling framework and there is no specific target to increase the allocations to Asia. Still Aaten is very bullish on Asia, a view that sometimes differs from his colleagues in Europe.

“There is no specific goal to increase a regional allocation,” he said.

“The pension funds work with a three-year strategic ALM and is still set up very traditionally with asset categories. All of these models are based on inputs and return expectations, and that’s where sometimes we might disagree on assumptions that are being used that require a deeper discussion.”

Aaten points to the large Dutch firm ASML as an example of tapping into the Asian growth story. The firm generates more than 80 per cent of revenue from Asia.

“I feel that it is easier to make money in economies that are growing,” he says. “The argument that I get often is that investments in the US and Europe would have done better than emerging markets, so why be so positive on Asia?

“There are not a lot of IPOs in Hong Kong at the moment, and there are a lot more in the US. So you might argue the US is the place to be. But when are you IPOing? When you think you’ll get a decent price, and you sell because you think you’ll get more than what it’s worth. You are not IPOing if you are not getting value. So it’s it the other way around, as investors we should buy where there are no IPOs because there is a bargain.”