Conference Presentation, Panel, Fireside Chat
Investing for the Long-Term
Milken InstituteIan Martin, Sophia Cheng, Azmil Zahruddin Raja Abdul Aziz, Michael Rolland, Tom Tull
- Public funds are expected to increasingly manage capital internally and engage in third-party business, potentially reducing costs to 10 basis points from 40 basis points while moving away from passive strategies.
- Public market liquidity is anticipated to continue drying up, with a structural shift expected toward private alternatives, including a projected global surplus of private over public companies.
- Emerging markets are forecast to demonstrate liquidity growth at least double the rate of the U.S., driving increased infrastructure deal activity in India, Latin America, and the Philippines.
- Asset allocation plans include expanding exposure to alternative asset classes from 26% to 37% over several years, with OMERS targeting a 55% allocation to alternatives over the next five years by reducing public debt and equity holdings.
- The private equity landscape is predicted to become increasingly crowded globally and specifically in Asia, leading to higher valuations, more competition, and a rise in secondary market transactions and partnerships rather than traditional IPOs.
- Investment strategies will involve adjusting J-curves based on market cycles, with a current preference for the secondary market, and building internal credit teams to complement private side deals and fixed income complements.
- ESG policies are projected to be hardwired into investment programs within one to two years to proactively avoid legislative dictation, with specific exclusion mandates for sectors like tobacco, gambling, alcohol, and mining.
- Asia's consumer sector is expected to remain a strong performer for the next decade, though demographic shifts from a young population to an aging one will alter investment dynamics within the next 10 to 20 years.
- Risks regarding climate change and under-estimated market valuations are highlighted, with expectations for pricing differentiation based on TCFD and science-based targets, while maintaining long-term horizons of 20 years to manage volatility.
- Insurance companies face challenges with negative spreads and guarantee rates, requiring a move away from high-guarantee rates of 2007, a shift toward lower rates, and a mix of foreign currency and unilink policies to manage risks.
- Regulatory frameworks including the Volcker rule and Dodd-Frank are anticipated to potentially change, which could alter the private equity landscape and bank lending practices, while central banks are urged to maintain discipline to lock in assets at proper rates.
- Investors plan to focus on solar industry investments and co-investing with governments, engaging with companies to improve disclosure rather than solely excluding bad actors, and utilizing ESG databases as a strategic differentiator.