GLOBAL - More and more pension funds in emerging markets are forgoing global equities in favour of emerging market equities, said Nick Lyster, European chief executive at Principal Global Investors.
Lyster (pictured) said: "We hear from emerging markets investors a lot. Whereas five years ago, they would have said to us: ‘OK, we're looking to diversify. We're going to be buying global equities.' Now they're saying: ‘Well, why would we do that? I want to invest in other emerging markets.'"
The move by pension funds in these countries reflects a broader interest among institutional investors world-wide in emerging market assets. Lyster said interest from investors in the west, who typically underweight emerging markets by allocating a mere 5-10% of assets, will continue to drive flows. "There's a strong argument it should be 15-20%. So you add all that together and you can see significant flows."
He added: "I think that emerging market equities and emerging market debt are still going to be of great interest. There is an argument that maybe they've had a very good run, maybe they're overpriced, but we believe this is a long-term, sustainable move," he said.
Principal Global Investors manages $227.4bn through its multi-boutique business model and much of its growth has come from acquisitions. Officials at the firm have been vocal about their search for new companies to buy.
Lyster said he'd be "very surprised if we don't do any this year. I would expect us to do something in 2011". And while in the past, acquisitions have mainly been in the US, he said more and more opportunities were presenting themselves in Asia and Europe. "I would very much expect us to do an acquisition in Europe at one point."
He declined to provide more details.
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