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Principal Global Asia CEO

With uncertainty surrounding global markets, investors have tempered the desire for yield and are seeking income-oriented solutions, said Andrea Muller, Asia chief executive for Principal Global Investors.

Muller said investors’ quest for yield was evident in 2013, but that now they are exercising greater caution. 

Investors are not looking for alpha-generating products, but are instead seeking solutions that can address their income, capital appreciation or return needs.

Speaking to Fund Selector Asia, she said her firm has been seeing huge demand for various income producing strategies ranging from real estate to dividend yield to alternative credit strategies.

“The retail segment across Asia is focused on income. Demand is huge and in any asset class, they want income. So we had to look at adding an income share class in some of our funds.

“There is a strong preference for dividend yields. We have a global value and income fund that has seen a lot of interest in the US and from institutions here in Asia.”

The demographic trend not only in the West but also in Asia suggests that the investor preference for income-producing instruments is sustainable, Muller said. 

“Investors need to think about their retirement and they are concerned about regular income. So they need to start focusing on a fund as a vehicle that can provide that. Governments and regulators around the region are painfully aware of it.”

Muller cited an independent survey by CREATE-Research, commissioned by Principal Global Investors, that showed funds with an income focus becoming the most popular choice among the retail investors surveyed worldwide. Over the last two years, investors’ interest increased from 48% in 2012 to 62% in 2014.

Alternative credit

Investors are also looking at alternative credit for yield as there is a relatively low default rate and at the same time a likelihood of a decent return, she said.

However, investors want some downside protection.They are looking for vehicles that tap into collateralised loan obligations (CLOs), senior loans, mezzanine financing and commercial mortgages.

Real Estate

Investment in real estate has taken off like never before, she said. The hybrid asset class can address various needs of investors in terms of income, capital appreciation and inflation protection.

In Asia, most of the large institutional investors have increased allocation to real estate and over the last 18 months they have raised exposure to REITs, she added.

Citing the results from CREATE-Research, she said real estate is becoming popular among high net worth investors globally. In 2012, 37% of investors surveyed preferred the asset class and in 2014 the figure was 61%.

Even as real estate is getting traction here in Asia, Muller believes that the asset class can get a further boost depending on the securitisation market.

“If the securitisation market picks up a bit more here in Asia like in the West and once the [securitisation] law comes through in China, trust me there is going to be a huge growth of real estate across the region and more so in commercial mortgage-backed securities.”

Principal Financial Group manages $500bn in assets under management. Out of this, Principal Global Investors manages $328bn and its real estate boutique manages $53bn.



Part of the Mark Allen Group.