(Bloomberg) — Falling global stock and bond prices this year, coupled with pain in private equity amid declining market numbers, have investors around the world leaving their nets far and wide. away for opportunities.
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In interviews with Bloomberg News, seven institutional investors with about $2.3 trillion in combined assets under management from Beijing to Toronto and Melbourne outlined investment plans aimed at what is likely to be a challenging 2023.
Some say valuations in public and private markets need to fall more before they spend heavily, building cash piles that will enable them to react quickly when an investment thesis comes to an end. Meanwhile, other areas are looking to areas like rare metals as a home for their capital as long-term shifts make these sectors ripe for big profits.
Here’s a look at those strategies and how they’re setting up their funds:
GIC Pte. (est. $690 billion)
For Singapore sovereign wealth fund GIC Pte., preparation means having cash ready, a willingness to spend it and an ability to buy low-cost assets as other investors sell off. Chief Investment Officer Jeffrey Jaensubhakij has made investments that hedge against inflation and says price pressures will continue to rise amid tight labor markets and underinvestment in commodities.
“Having some dry powder, as opportunities arise, allows you to deploy quickly and not get caught up in some asset-liability mismatch that you have to sort out,” he said. “It was important for us to try to move assets from the asset classes like bonds and ordinary shares to things like real estate and inflation where the ability to be linked to CPI or the ability to have high demand allows rents to rise over time give us some protection. against inflation.”
In the long term, infrastructure and commodity projects can act as a hedge, he said. Meanwhile, student accommodation that can be used as hotels for tourists and business travelers during the summer, and telecommunications infrastructure and real estate in key markets such as Japan and Australia are among his main investment ideas.
GIC Chief Executive Officer Lim Chow Kiat said that buying secondary private equity funds during the pandemic has been profitable and expressed the firm’s desire to do more of this type of deal.
“The opportunity opened up and so the team responded to that and really put a lot of capital into that space and generated a good return,” he said. “That’s another example of something we want to inculcate more and do more here.”
Fidelity International $613.3 billion
Anne Richards, chief executive officer of Fidelity International, said Asia including China could bounce back faster than other parts of the world.
“The dynamics in Asia compared to the dynamics with the US and Europe are very different,” Richards said during a panel at the Bloomberg New Economy Forum on Wednesday. “We are more positive on Asia as a market and flow region for 2023.”
Richards said there is increasing interest, if not action, for Asia and China. The recent easing of the economy due to Covid measures and policy support for the property sector has investors betting that Xi Jinping is refocusing his attention on economic growth.
“There’s a lot of optimism about where China is in its interest rate policy cycle, and the benefits to the region as well as the kind of gradual opening up,” she said.
Australian Super A$272 billion ($184 billion)
AustralianSuper Pty Ltd Chief Investment Officer Mark Delaney is taking a cautious approach. His pensions firm, Australia’s largest, began turning defensive late last year, reducing its exposure to ordinary shares and listed credit.
“We have recently built our positions in cash and fixed interest, which we think could benefit from a downturn,” Delaney told Bloomberg. Over the next 12 months, the fund is unlikely to change its asset allocation materially and remains concerned about private markets.
“What we’re most cautious about is the asset classes (in) which values haven’t adjusted yet, and you could put private equity in that category for example, and maybe property and maybe infrastructure, ” he said. “We think the share market has probably made more than half the adjustments from the peak to the trough.”
Instead, the fund expects to look for new investments when good opportunities start to emerge in 12 months’ time.
“Probably the first place we’ll go is to deploy capital into fixed interest, responding to the end of the inflationary cycle and the eventual deflationary cycle,” he said. “Therefore, if share prices continue to adjust there will be opportunities in the share market and largely also in the credit markets around the same time.”
Ontario Teachers Pension Plan C$242.5 billion ($183 billion)
CEO Jo Taylor wants mining assets, with rare minerals and metals as their primary target.
“Rare metals. Because they’re just that — they’re scarce and there aren’t that many that aren’t Chinese-owned,” he said. “You can have the commodity rather than some kind of trading index, it’s not a big market.”
That means targeting copper producers in Canada and Chile, lithium from Latin America and finding sources of cobalt.
“We are looking for partners on a private basis; could be a project. We have done some with Glencore and others in the past,” he said. “Even if we go very active on this it won’t be that we move the market to this.”
And it is also scouring markets to acquire scarce trades more broadly, from battery manufacturing chains and chip makers to water, food and Indian businesses that have little to scale. In August, OTPP bought a majority stake in Sahyadri Hospitals Ltd. as part of their first private equity buyout in India.
Partners Group $131 billion
The Chairman of Partners Group Holding AG, Steffen Meister, agrees about the suffering that people and businesses have experienced in recent years. But from a business perspective, now is a good time to strike deals, he said.
“Strictly talking about business and opportunities, this is the time you have the opportunities because the economy is not going away,” he said.
Meister warns that this only works for businesses that anticipated the disruption. Partners Group has pushed out refinancing until 2025 and has hedged much of its rate exposure, he said. The fallout from recent UK volatility in the pound and gilts would help boost other opportunities.
“It’s a very human thing when you look at the public markets where people are biased towards the immediate reaction,” he said, with distant operations moving to countries closer to home — among the investment opportunities which he sees. in the UK. “For the last two years you have been very worried and now I think you can relax a little more.”
Longer-term themes such as aging populations are good sources of deals, Meister added. This could mean that residential rental housing or flats are built with affordability and inclusion as a key theme. Other investment ideas include logistics, cold storage and pharmaceutical storage.
Temasek holdings S$403 billion ($295 billion)
Temasek International Chief Investment Officer Rohit Sipahimalani mentioned investment themes such as sustainable living, increasing consumption, longer life spans and healthcare.
But when Meister feels this is the time to make deals, Temasek is slowing down the pace of investments. One focus is on helping companies in their portfolio survive the coming economic downturn and use it to expand and “strengthen” their positions in the coming year, he said. For new markets, the investment giant will be more selective.
“We are cautious because we don’t think valuations fully reflect the downside we expect over the next 12 months,” he said. “The reason we’re slowing down is the valuation environment — there will be better opportunities in the past.”
China Asset Management 1.79 trillion yuan ($253 billion)
Despite sharp declines this year, China’s A-share stock market remains a better option than the US, European or Hong Kong equity markets, according to Richard Pan, Chief Investment Officer of global capital investment at China Asset Management based in Beijing.
The Federal Reserve still needs to raise interest rates to reduce inflation as the United States continues to slide into recession, Pan said. This threatens fuel outflows from markets like Hong Kong, while Europe is in a worse situation, grappling with the energy crisis and debt issues.
“China is a rare place where the government is still in a loose cycle,” providing plenty of liquidity, Pan said. “The yuan also remained stable against a basket of currencies despite depreciation against the strengthening dollar.”
China Asset Management sees opportunities in new energy and fossil fuels due to strong demand over the next decade, and it likes health care and medical equipment stocks, he said. The company also favors consumer stocks because consumption will normalize sooner or later, especially high-end players like luxury shopping malls that have seen sales climb even as economic growth cools. Pan said there is concern that China could mislead support for its open policy, even as the Covid outbreak has fueled concern.
“A once-in-a-lifetime pandemic is a rare occurrence and should not be taken for granted,” he said. “People should not be too pessimistic about the Chinese economy.”
–With assistance from Abhishek Vishnoi and Sarah Wells.
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