PPI member, the Government Provident Fund of Thailand, served as our host fund for the Asian Pension Fund Roundtable and the PPI Executive Seminar, concluded in early November in Bangkok. Both were major successes for PPI and served to deepen our engagement in Asia, now seven years in the making.
The 2009 Asian Pension Fund Roundtable was PPI’s seventh Asian roundtable. Interestingly, the first, in 2003, also took place in Bangkok. This year's Roundtable drew a record turnout, both in terms of number of funds and public agencies linked to social safety net issues and in terms of participants. For the first time, the number of funds and agencies outnumbered the number of corporate participants!
While we deeply appreciate the support of our corporate members and those few corporate participants who are not members and who join the roundtable as guests, PPI's core emphasis when it comes to participants are the plan sponsors, and when it comes to programming, these plan sponsors’ fiduciary responsibilities as investors and managers. Our corporate members who serve as Asian Roundtable underwriting sponsors are especially critical to the roundtable’s success. Nevertheless, the program is organized for the benefit of those who are responsible for the day-to-day management and investment of others’ retirement assets.
Plan sponsors have a fiduciary duty to make sure they understand as best they can the vagaries of the short-term financial outlook as well as how policy decisions, geo-political relations, economic issues and similar concerns might affect the bond and public and private equity markets. They must be concerned about the intersection of changing demographics with their domestic capital markets. Their understanding must be sufficient to make prudent investment decisions with the likelihood that these decisions will reverberate and affect the retirement livelihood of thousands of employees across Asia. In short, they must understand as much as they can to know the questions if not the answers.
The turnout for the roundtable – from 22 different countries and economies including Japan, China, Taiwan, Hong Kong, Bhutan, Vietnam, India, Pakistan, Indonesia, Laos, Singapore, Thailand, Korea and Australia – demonstrated that governments in Asian emerging markets in particular want to support sustainable safety nets for workers. Not only is this the correct thing to do, this acknowledgement is also part of an Asia-wide effort to move domestic economies structurally forward and less dependent on external markets, particularly in the West, and more dependent on a thriving domestic consumer class.
The process is definitely long-term, but the Asian economies represented at this year's roundtable have their eye on the ball.
Please watch for our Bangkok Report, which John Hunter Gray, PPI program officer, now is compiling. Also, for the first time, we will soon be posting a video recording of the proceedings in the library of our website. Kris Greenville, PPI communications officer, is in charge of the project. Both the Bangkok Report and the Roundtable video illustrate PPI's efforts to contribute to the education of pension managers worldwide and to encourage stronger fiduciary standards and prudent decision-making when it comes to investments as well as pension management.
Please let us know what you think. As always, we welcome and encourage your feedback.
I’ll conclude with a note about two very different events that book-ended the Asian Roundtable for me and several others within PPI's membership. The first was the PPI Executive Seminar – a two and one-half day series of meetings with senior-level government officials, business representatives, policy makers and academics. In its fifth incarnation, the PES facilitated a deeper understanding for participants of the prospects for the Thai economy and that of the ASEAN countries, of which Thailand is a member.
PES engaged a total of 13 delegates from various funds in North America along with the Thai GPF and a handful of PPI corporate members.
First hand, we learned that 1) the Thai economy remains very dependent on exports and in the short-term, on substantial government stimulus. China looms large, not only for Thailand but for all of ASEAN, as a growing trading partner with increasing clout internationally. In the meantime, the traditional western markets for Thai and Asian goods will remain anemic with prospects for modest growth in 2010.
Still, the Thais are well known for their resiliency. This characteristic dates back at least to the colonial times when Thailand found itself sandwiched between the interests of France and Great Britain but still managed to play the two erstwhile trading adversaries off against one another.
Thailand also has survived the Asian financial crisis in good form. While it might have been the de-valuing baht that set in motion the severe downward economic spiral for the Asian Tigers, Thai reserves today are among the strongest. The same is true across Asia, notably in Japan, Korea and China.
The Thai car industry may only be at 50 percent capacity, but the Thais are looking for other ways to diversify their economy, notably medical tourism. In the meantime, large multinationals, like Siam Cement Company, are diversifying across product lines, leaving cement as a smaller and smaller part of their business. Their focus clearly is on the ASEAN domestic markets. Banks and financial services generally also are strong with the Thai mutual fund market reportedly one of the largest in Asia.
The efforts to modify the structure of the Thai economy in line with changing intra-global economic and financial circumstances is but one piece of an overall effort across the ASEAN countries to rapidly grow the region as an economic bloc. While the effort is considerable, the challenges are underscored by the fact that Singapore and Malaysia have the largest per capita consumption rate in all of ASEAN but represent a very small share of ASEAN’s 550 million population.
The second event took place on the heels of the Asian Roundtable at the annual Asia Venture Capital Journal conference in Hong Kong. PPI members and AVCJ conference keynote speakers included Howard Marks, chair, Oaktree Capital Management, who compared the US economy to a car behind a tow truck. Sooner or later, the tow truck will have to cut the car loose. The way to deal with the volatility around that scenario is to control your risk by being cautious.
Bill Owens, whose firm AEA Investors (Asia) also is a PPI member, described current circumstances for private equity investment in Asia as generally dependent on two assumptions: 1) that stability in the Chinese economy can be managed; and 2) that the US economy comes back in some manner. Achieving the "sweet future" of successful private equity investment in China also depends on being able to cultivate long-term relationships in the country.
Also addressing the outlook for private equity in China, JonCarlo Mark, CalPERS senior portfolio manager for alternative investment management, described China's private equity market as 1) “very immature” 2) operating in an uncertain regulatory framework and 3) laboring under the government’s role in the economy. It’s a balancing act for the government, he continued, between encouraging foreign investment on the one hand, and spurring its own institutions to achieve investment heft.
K.Y. Tang, a early days participant in PPI roundtables and chairman and managing partner, Affinity Equity Partners headquartered in Hong Kong, addressed the efficacy today of private equity as an investment model. Yes, it still works, said Tang, but the model has been “corrupted by excesses and low standards". It’s time for the industry to return to basics. Private equity investment should deploy medium-term capital over five to seven hears instead of “flipping”. He advocated thorough due diligence, a focus on business fundamentals and understanding the nature and character of entrepreneurs in today’s world.
The Hong Kong conference drew over 1,000 participants, with arguably more activity outside the conference room in ex parte meetings with limited and general partners than inside the conference hall. The panel I facilitated, titled “Asia forges ahead of the West” engaged representatives of the University of California Regents Foundation and the Harald Quandt Foundation, Germany.
What follows is an article published under my byline in the AVCJournal and distributed at the conference, describing the mood in San Francisco and elsewhere in the United States and the West in sharp contrast to the headiness that described the recent conference in Hong Kong. Please click here if you would like to be taken to the AVCJ article. Please click here if you would like to be taken the article.
Again, if you have any comment or contributions to the CEO Corner, please do be in touch via an email to info@pacificpension.org. |
