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French (Canada) - Canadian Private Sector Pension
- 2024
- China Equity (Long Only or Long/Short)
- USD 30 million
- Increase the overall exposure to China equities
- Manager research
Our specialist says:
When international investors are considering China investment strategies, it is important not to overlook firms that are based in the region, even where their names may be less well known globally. Many have very strong investment capabilities and impressive track records. On-the-ground presence and deep local knowledge can help teams to pick up early signals of change and act decisively. In our experience, these teams typically spend a great deal of time on the road, meeting companies face-to-face. For investors seeking to exploit the alpha generation potential of China’s equity market, strong research coverage of local managers can greatly increase the universe of attractive ‘high alpha’ options. Rigorous analysis can address particular concerns (e.g. U.S. sanctions exposure) that are specific to this market.
- 264Considered
- 43Proposals accepted
- 13Shortlist
- 1Selected
Client-Specific Concerns
This Canadian pension fund already had considerable experience in the Chinese equity market, with existing exposures to both Global Emerging Market Equity and China Equity Market Neutral strategies. Their objective was to increase the overall exposure to China equities while also improving performance relative to the market by adding a high-alpha, benchmark-unconstrained strategy to the portfolio. Long only and long/short (long-biased) pooled funds were both under consideration. Minimum requirements included three years of live track record and strategy-level AuM of at least USD 200 million.
bfinance value-add:
- Comparing diverse fund types and share classes. Pooled funds span a variety of structures (Cayman, UCITS and China-domiciled) with different dealing frequences, lock-up periods, fee structures and more. It can be challenging to produce ‘apples-to-apples’ comparisons with this diversity in view. Thorough analysis of terms can enable investors to compare proposals side by side. In addition, some funds or share classes comply with the U.S. sanctions list, while others do not.
- Broad coverage of local asset managers as well as global firms. The majority of the 264 firms that were considered for this mandate are based in China, offering on-the-ground presence and networks that may facilitate strong alpha generation (the investor’s objective) in what remains a highly inefficient equity market. Indeed, more than ten of the shortlisted managers had delivered >5% alpha, net of fees, over the long term.
- Providing clear choices. Through the optimisation, the team developed four candidate portfolios for the client’s consideration. While all were well diversified across credit types with exposure to fixed and floating rate debt, risk profiles varied from ‘medium’ to ‘medium-high’. This enabled the investor’s team—who had developed a robust understanding of the various choices through the process—to reach an informed decision.
- ESG-related risks and opportunities. Most Chinese companies provide limited English-language disclosure on ESG matters, which often results in lower ESG scores from international rating agencies. Active managers can undertake direct engagement, overcoming language and other barriers to identify companies with stronger and weaker ESG practices. Effective practices in this space can support risk management and, potentially, alpha generation.
Conviction play: high alpha, high tracking error
Source. bfinance.
