UK - First State Investments (UK) has closed its Asia Pacific and Emerging Market portfolios after inflows of £1.5bn.
Angus Tulloch, head of global emerging markets and asia-pacific equities said: “Large inflows over the also past year could cause indigestion if not carefully controlled and it could become become difficult to buy enough of the smaller companies we like if we do not act now.”
The portfolios will remain open to cash flow from existing clients and First State will accept new business from institutions that have awarded but not yet funded their investment.
Martin Harris, head of institutional business said: “Over the past year pension funds have been allocating more assets to specialist areas particularly emerging markets.
“For many clients, this has been simply rebalancing their portfolios. However, there is also strong evidence of funds recognising that active management in these inefficient markets produces high levels of alpha.”
He added: “Another interesting trend is the growing interest in risk budgeting among pension funds which is underpinning the flow of assets into emerging markets, and the move towards using managers such as First State offering a higher tracking portfolio and 8% per annum plus excess returns.”
Harris said that UK and European pension fund had invested around 70% of £1.5bn in the two portfolios.
He said that emerging markets were an “explosive item” and pension funds would increase their allocation to the asset class to 20%-30% in the next few years, from current levels of 5%.
“Allocation to China, India and Russia could surpass allocations to Europe and UK,” he added.
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