What Does It Take To Win A Pension investment Mandate For Chinese Equities?

Recently, the Australian superannuation fund awarded a mandate to Ninety One that targets Chinese equities. Will dedicated China market exposure become a norm for global institutions?

18 November 2020

Recently, State Super, the manager of A$42 billion Australian superannuation fund, awarded a mandate to Ninety One, a newly rebranded asset management house headquarters in the UK and South Africa, that targets Chinese equities. This is one of the earliest discrete allocations to Chinese equities by Australian institutional investors. Earlier in the year, we saw investors from other jurisdictions placing large tickets of investment into China equity market, such as Border to Coast Pension Partnership in the UK and the Witan Investment Trust listed on London Stock Exchange.

近日,管理着420亿澳元的澳大利亚养老金基金State Super向晋达资产管理授权。晋达资产管理是一家新更名的资产管理公司,总部位于英国和南非,专注于中国股票。这是澳大利亚机构投资者最早对中国股票进行的配置之一。今年早些时候,我们看到不同国家的投资者将大笔资金投入中国股市,如英国的Borde To Coast Payment Partnership和在伦敦证交所上市的Witan Investment Trust。

Will this dedicated China market exposure become a norm for global institutions? What are the main drivers for global investors to explore the Chinese equities universe? What are the attributes of a China market manager that allocators value most in their manager selection? To answer these questions, ATC Initiative Founder, Mr. Sun Wei interviewed Greg Kuhnert and Justin Cowper from Ninety One who are closely involved in this mandate win.

这种专注于中国市场的形式会成为全球机构的常态吗?全球投资者探索中国股市的主要驱动力是什么?投资者在选择经理时最看重的中国市场经理的特质是什么?为了了解这些问题,配置中国倡议(ATC Initiative)的创始人孙伟先生采访了晋达资产管理的四大动力投资团队联席主管顾诺祈和亚太客户团队,机构业务主管Justin Cowper,他们与赢得这场授权密切相关。

Greg Kuhnert and Justin Cowper

Our disciplined fundamental research and our adoption of very high standards of ESG integration and corporate engagement during an increasingly uncertain political climate contributed to the winning of the mandate. — Greg Kuhnert, co-Head 4Factor investment team, Ninety One

我们严谨的基本因素研究、采用非常高标准的环境、社会及管治 (ESG) 融合,以及在政治氛围不确定性日益增加的环境中的企业互动协作 (engagement),都有助我们获选。– 晋达资产管理,四大动力投资团队联席主管顾诺祈

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SUN Wei:

Congratulations on winning the mandate. What do you think are the key reasons that State Super selected Ninety One versus other managers?

恭喜赢得此次投资委托。您认为是什么原因让晋达资产管理能够在众多资产管理业者之中,获得State Super的青睐?

Greg Kuhnert, co-Head 4Factor investment team, Ninety One:

Our long-term vision and our unique 4Factor “all-China approach” enable investors to capture the breadth of opportunities. An all shares approach to China is compelling due to high alpha potential while diversifying beta which suits skilled alpha hunters.  The behavioural component of our proprietary 4Factor process resonates with our clients who understand the substantial behavioural biases in Chinese equity markets. Our disciplined fundamental research and our adoption of very high standards of ESG integration and corporate engagement during an increasingly uncertain political climate also contributed to the winning of the mandate.

After establishing the 4Factor investment process 20 years ago, the 4Factor team recognised early on the future importance that China will play in the global investment universe and begun investing heavily in their dedicated China team based in Hong Kong. Now with five Mandarin speakers the fundamental research conducted on the ground in China ensures that they can build a high conviction portfolio of 30-50 Chinese companies that exhibit strong Quality, Earnings, Value and Technical characteristics. It is also this on the ground company research which is critical for identifying and understanding ESG related risk factors.

We have local colleagues, from sales and marketing to investment experts, servicing clients in Asian time zones. This allows us to handle clients’ enquiries quickly. The whole team runs a 24-hour operation globally to ensure timely and high quality service.


我们的长期视野以及独特的四大动力「全方位中国」投资方针,令投资者得以捕捉投资机会的广度。对中国市场采取全股份的投资方针相当具吸引力,因为高超额回报 (alpha) 潜力同时能够分散市场风险 (beta),适合寻找超额回报的熟练投资者。我们的客户认识到中国股票市场存在大量的投资行为偏误,因此与我们专有的四大动力程序中的行为因子产生共鸣。我们严谨的基本因素研究、采用非常高标准的环境、社会及管治 (ESG) 融合,以及在政治氛围不确定性日益增加的环境中的企业互动协作 (engagement),都有助我们获选。



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SUN Wei:

Could you describe a bit more about your China equity strategy and why that suits the characteristics of China equity market?


Greg Kuhnert, co-Head 4Factor investment team, Ninety One:

Our all-China approach allows investors to flexibly invest across domestically-listed A- and B-shares, Hong Kong listed H-shares, red chips, P chips and US-listed American Depositary Receipts (ADRs). This is a universe of over 6,000 stocks, equating to approximately US$ 12 trillion of market cap, accessible to investors.

Making separate allocations to offshore China or onshore China remains a convenient way to circumvent China exposure that overlaps with existing emerging market or Asia allocations. However, this requires asset allocators to decide on portfolio exposure to the different listing locations for Chinese stocks (notably Hong Kong and mainland China). It may also require frequent rebalancing across portfolios during volatile markets. Taking an all-China approach, in our view, allows the flexibility to select the best Chinese stocks irrespective of where they are listed and focus instead on the underlying assets relative to the broader China universe. We believe this maximises the opportunity for alpha generation.

This wider pool of opportunities also provides access to a more diverse sector and company exposure. It therefore maximises exposure to best ideas across a variety of industries, enabling us to construct balanced portfolios. The all-China approach allows us to invest across themes which we believe underpin the long-term winners in China, from dominant players in the old economy benefitting from restructuring and reform and winners in the new economy to the consumer sector leaders that enjoy increasing brand power and market positions.

The flexibility of an all-China approach enables us to capture the most compelling opportunities regardless of where they are listed. This is particularly beneficial at a time when there is an increasing number of newly listed companies in mainland China and on the Hong Kong Stock Exchange. For example, US-listed ADRs are finding refugee in Hong Kong by securing a secondary listing there in anticipation of legislation that could force Chinese ADRs to de-list after three years.


我们的全方位中国方针令投资者灵活的投资于内地上市的A股及B股、中国香港上市的H股、红筹股、P股,以及美国上市的美国预托凭证 (ADRs)。投资者能够触及的这个投资领域包含6,000只股票,等同于约12万亿美元的市值。




SUN Wei:

I understand that this is one of the first discrete China equity allocations from Australian institutional investors. How do you look at the prospect for global institutions to make such dedicated China mandates?


Greg Kuhnert, co-Head 4Factor investment team, Ninety One:

China’s equity markets are now the second largest (after the US) and possess distinctive features that represent the China growth story. We believe holding Chinese assets brings a tangible advantage given the potential to deliver higher risk-adjusted returns. The country leads in key technologies, including robotics and electric vehicles, and is the only nation outside of the US with several large, mega-cap technology companies. This growth looks set to continue, with China investing more than any other country in artificial intelligence – accounting for some two-thirds of global spend.

One of the strongest arguments for Chinese assets remains that they form a large market delivering uncorrelated returns while foreign ownership of Chinese equities remains very low. As Chinese markets open to international investors, international capital will rotate out of domestic developed markets. The resilience of Chinese equities has been underscored by its remarkable economic recovery this year, its effective control of infection rates and its strong advantages in the digital/internet enabled sectors of the economy. Given that China’s onshore equity market (China A-shares) represents approximately 70% of all Chinese stocks and is dominated by domestic private investors, we believe there are significant alpha opportunities for bottom-up active investors to tap into this growth. The picture further improves when one considers the low correlation between Chinese equities and other major equity markets, enhancing the potential diversification benefits that an allocation can deliver.




SUN Wei:

Could you share your ESG policy and practice for your China strategy? How important has it been in winning this particular mandate?


Greg Kuhnert, co-Head 4Factor investment team, Ninety One:

Environmental, Social and Governance (ESG) integration is a priority for the leadership at Ninety One. We believe that treating material ESG issues as an integral part of the investment analysis brings greater benefits to the process rather than treating it as a separate procedure.

We have a dedicated global ESG team, which is steered by a senior Investment Governance Committee. Together with all the investment teams, the ESG team focuses on integration strategies, ESG research and engagement efforts.

Understanding ESG concerns and risk factors is an important component of 4Factor’s bottom-up analysis as we believe it helps us gain a better understanding of a company’s strategy, one of the four key attributes of our investment philosophy.

On an ongoing basis we are working to enhance the holistic integration of ESG research at various stages of the process. Arguably the most important stage of integration within the 4Factor investment process is in fundamental analysis; where many of the most subjective aspects of ESG understanding can be appraised and incorporated into the fundamental investment case. Each of our research notes includes a formal section that allows for discussion of ESG issues.

Beyond the research and investment stages of the process, another area we feel is key to our ESG efforts is that of engagement; acting as responsible shareholders on behalf of our clients. The investment team initiates engagements based on their investment research and priorities. We also have a dedicated team of eight ESG professionals split between our offices in the UK and South Africa. The ESG team work closely with the investment team to provide a supporting engagement strategy which targets specific holdings and material ESG themes that are significant to the firm, the investment team, and our clients. Our deep focus on ESG integration over the last several years has enabled us to avoid the many pitfalls that shareholders have encountered in China equities on governance issues. At the same time we are encouraged by companies stepping up their disclosure standards on ESG as we engage individually and collectively (Climate Action 100) with them.

We are confident that successful engagements on pertinent issues have the potential not just to fulfil the duty of shareholder responsibility but can also have a tangible long-term benefit to share price performance.


环境、社会及管治 (ESG) 的融合,对晋达管理阶层而言是优先事项。我们相信将重大的ESG问题纳入投资分析的一部分而非分开处理,将对程序带来更大的优势。


了解ESG问题以及风险因子是四大动力由下而上分析的重要成分,我们相信它将协助我们更深入了解公司策略 – 是我们投资理念的四个重要特质之一。


在投资程序的研究及投资阶段之外,我们认为互动协作是我们对ESG作出努力的关键;代表我们的客户,作为负责任的股东而行动。投资团队基于他们的投资研究及优先事项而发起互动协作。我们也有一个专属的团队由八位ESG专家所组成,分布于在英国及南非的办事处。ESG团队与投资团队密切合作,提供支持的互动协作策略,锁定特定持股及对公司、研究团队及我们的客户而言,重要的具体ESG主题。我们过去七年深入的专注ESG融合使我们避开许多投资者在中国股票在管治方面遇到的陷阱。在此同时,我们受到许多公司提高ESG披露标准的激励,因为我们与他们进行个别及集体互动协作 (Climate Action 100)。


SUN Wei:

Aside from equity, have you seen increasing interest from global institutions in other asset classes in China?


Justin Cowper, Head of Institutional, Asia Pacific Client Group, Ninety One:

The onshore China bond market has seen a significant broadening and deepening of issuance in recent years to become the second largest bond market globally, with a market capitalisation exceeding that of both German bunds and UK gilts. Index inclusions to flagship indices in 2019 and earlier this year have catalysed acceptance of this asset class into the investment mainstream.

China bonds provide investors with a diversified source of potential return and a significant yield premium compared with other asset classes. The decision by FTSE Russell to include China bonds in the WGBI is expected to inject another c$120bn of passive investment flows into China over the next two-to-three years. It also continues the mainstreaming of this asset class, evidenced by the country’s inclusion in other major bond indices such as the Bloomberg Barclays Global Aggregate Bond Index and the JP Morgan GBI EM Global Diversified Index. By including China, FTSE Russell acknowledged that ‘Chinese authorities have implemented significant improvements to the fixed income market infrastructure, facilitating easier participation by international investors. These market enhancements include: improving secondary market bond liquidity; enhancing the foreign exchange market structure; and developing global settlement and custody processes’.

Based on current projections, China’s eventual weight in the WGBI is expected to be c5.7%; similar to that of German bunds and above that of UK gilts.

Even before Chinese bonds started to enter mainstream market indices, improved foreign investor accessibility has spurred an increase in the number of overseas investors allocating to the asset class. Central banks and sovereign wealth funds started this trend, but today the investor base has expanded to include the wider global asset management community. This is thanks to a combination of improved market access and increased awareness among investors of the potential benefits to their portfolios of allocating to the asset class.

By the end of the first quarter of 2020, foreigners’ investments accounted for CNY 2.3 trillion (USD 328 billion) of the onshore CNY bond market, more than three times the amount seen five years ago.

Although it is growing, exposure to China is still relatively low in global bond portfolios. As foreigner investors gain more insight and comfort in this asset class, we believe that China bonds will feature increasingly in their portfolios. Therefore, we expect fixed income inflows into China to be a structural phenomenon in the years ahead.

晋达资产管理亚太客户团队,机构业务主管,Justin Cowper:





截至2020年第一季末,外资占在岸人民币债券市场的比重为2.3万亿元人民币 (3,280亿美元),高于五年前的金额三倍以上。