Prudential CIO Rudd sees alpha in private markets

He explains why he thinks investors are missing out on ‘the exciting opportunities’ in China.

Benjamin Rudd, a Hong Kong-based chief investment officer at Prudential Hong Kong, a member of Prudential Group, said that private markets will increasingly be seen as the source of alpha as opposed to the public equity market in China.

Speaking at 2018 FundForum Asia held in Hong Kong today, he explained to conference attendees part of the reason is that private company owners are not taking their firms public.

According to him, private equity and private debt managers can identify growing companies at an earlier stage of a business life cycle and generate high returns of as much as 10 times cash multiple.

“Indices investors are missing out on exciting opportunities [to generate excess returns],” he said.

Jing Ulrich, a Hong Kong-based managing director and vice chairman of Asia-Pacific at JP Morgan Chase, a New York-headquartered investment bank, also noted that in China, investors see a disconnection between expected growth and real economic growth driven by the creation of wealth that has resulted in ‘new Chinese billionaires’.

“The equity market’s function of creating wealth and raising capital has not been fully developed in China,” she said, adding that its institutional market remains shallow for investors given the scale of its economy.

Rudd added that the corporate governance structure in China is not seen as designed to support minority stakeholders.

Prudential’s life insurance unit in Hong Kong allocates its capital in the private markets, globally, via direct investments and fund-of-funds vehicles.

Previously, the insurance group established a wholly foreign-owned investment management entity in China via Eastspring, the Singapore-headquartered asset management firm, to tap into opportunities in the private and institutional markets via the joint venture, according to its Asia Investor Meeting records released on 20 March.

Insurance group had £669 billion of assets under management as of 31 December 2017.