Speech at GAMF 2022
Barings' history in China goes way back. We're a company that's well over 200 years old, and while we've evolved and changed as a company over that period of time, our commitment to the region has not. We have been operating in the region for many years. We've actually been operating within China under the QDII with our institutional clients for over a decade. It's one that we've found great partners in that region, and will continue to invest and commit to that. In addition, in 2018, we set up a Wholly Foreign Owned Entity to establish our presence officially within China. We are located in Shanghai with a number of professionals that are there to really compliment not only the global investment capabilities that we had, but we're also looking to leverage the local capabilities. We've put investment professionals there to really tap the market in demand for Chinese investors, looking at both local equities and local bonds. We have three funds currently under the QDLP and the quota system, three separate products that we're very excited about. In addition, we're in the process of planning for our fourth.
Our long history there, both on the institutional side, and I think as we've seen that market evolve, we've also evolved. First starting with institutional clients, offering them traditional asset classes on the stocks and the bonds, and then going into more alternative type asset classes. And we're seeing the same thing and we would expect the same thing to hold true on the wealth side, as well as the individual side. And we're seeing that really manifests itself through the QDLP allocations that we have.
It's very evident China continues to grow at a very rapid pace in terms of its assets under management and the amount of wealth that is being established within the country, not only at the institutional level, but certainly at the individual level as well. What is increasingly apparent to us is not only the growth from a number of assets standpoint, but the growth and the sophistication of the investors to evolve to new and innovative products. That continues to be one of the areas that we think is most notable. It may be that China's a few years behind the rest of the globe in terms of its demand for certain products, predominantly on the private side. Again, institutions have been in this market for a very long time, but I think now as we start to look at the wealth markets and in the individual markets, the desire to have more private and alternative assets within a portfolio is becoming more and more apparent. It's our thesis that over time, China will in terms of its portfolio composition, if you will, of strategies, look very much like the rest of the world. And so there will be a compliment to not only traditional asset classes, be the stocks and bonds, both domestic and global, but also we'll start to see more and more private credit, more and more structured credit type investment classes, more and more private equity and more and more properties, both on the debt and equity side, finding their way into individuals portfolios. Again, this has been seen throughout the institutional space for many decades, and we're now starting to really see an acceleration in that demand from the wealth channels, as well as the individuals.
For all the regions that we operate in, we run a consistent model. We really try to take our global capabilities and bring them into local markets. We do think a hallmark of that is maintaining a presence in all the local markets that we operate in. And that's not just a sales or distribution office, but that's going to be investment professionals as well. And throughout our history, we have been partnering in the Chinese markets to bring our offshore capabilities into the local market. Bringing cross border ideas, wherever they may be, wherever the opportunity sets is, moving them into the market and participating and partnering predominantly historically, again, with institutional investors. But as we're seeing more and more changes in the market, we're seeing that partnering with wealth channels and we ultimately believe through technology and through access to the market, we'll begin to see that for individual investors specifically.
Technology has been a part of business for many years, and I think with the most recent two years, and certainly as we deal with the global pandemic, the reliance on technology and the capabilities of technology have really changed how we operate. From a distribution standpoint, we haven't really seen a slowdown. We're able to distribute and we're able to speak to investors in China from our head global headquarters in Charlotte and the amount of technology that's there allows for almost a seamless discussion between client and investment management. Moreover, the amount of technology and the sophistication we have in the ability to make portfolio asset allocations decisions, the ability to provide transparency to our clients in terms of reporting on a quick and real time basis, is all part of the technology that's allowing the asset management business to continue to move forward. Certainly, parts of Asia-Pacific I would argue are much further along in their adoption of technology, maybe than more so in the west, but it's been a welcome sign to see over the last two years that we really, as an industry and as business, have not seen things slow down in the dialogue, in the conversations, and the partnerships with clients has not been prohibited because of a lack of distance and not being able to meet face to face, but actually accelerated in many cases because of the technology we're implementing.
Many times you think about the historical asset classes where we've penetrated the market and we've participated and partnered in the market and China's no exception to that. It's really been, historically, around your traditional asset classes. It's been your global equities. It's been your global fixed income. Fixed income may have been a relatively new asset class a decade ago to many investors, but we're starting to see more and more of that and you're actually seeing the evolution of things that were traditionally called high yield. We're moving into more, we'll say, esoteric type asset classes when you look at real estate allocations. Private credit is certainly one that has had a lot of attention and a lot of demand on a global basis. We're seeing no exception (on interest) to that in the Chinese market.
All of these are starting to look more like a complete portfolio that we've seen in the Western world. And I would expect that trend to continue. And we're really impressed with the adoption and the level of sophistication by the Chinese investors, as we introduce more and more opportunities to them. The interest in these and again, the receptivity and the level of sophistication is really great to see.
ESG and sustainability has been really a hallmark of the way Barings has managed assets for many decades. Whether you go from our equity approach, the way we look at and how we evaluate and assess companies, we employ a higher cost or a lower cost of capital in our analysis to companies whose behavior we think fits within, we'll call it, the ESG/sustainability type model to even moving to being the first investor to provide middle market unitranche ESG linked lending facility. You know, we were really one of the early adopters in that. Our philosophy has been over time is to partner. We are looking for engagement as opposed to divestment necessarily. We believe that the challenges that we face under the ESG heading are going to be solved by partnerships and by investment and not divestment. Investing in companies to do the right thing, investing in technology to help advance the climate challenge that we have. We have really approached this and we've seen a lot of acceptance from the Chinese market in this and how our approach is to ESG. That is a partnership. Not only with us as asset manager and our clients as the investor, but also our portfolio companies, those that we lend to, those that we invest in, those that we own, and really looking at it from a collaborative standpoint. We've seen this approach be well received throughout the globe, and most recently in the Chinese market.
I think another area where the technology is really having a big impact, and certainly helping our business from an efficiency standpoint, but also really helping with the ESG goals that everyone is setting. I don't think we can ever replace the face to face meetings and the relationships that you build through face to face meetings and one on one meetings and things that take place. Hopefully over time those will come back as the situation around the global allows, but the technology advances we've had, the seamlessness and dialogue and ability to talk to clients quickly through Zoom, through Microsoft Teams, through all the video conferencing that we have not only allows for a more efficient business, but also helps us sustain our goals from an ESG standpoint. We've taken steps in the near term, actually, to be net zero from a standpoint of purchasing carbon credits in the current year. This is something we're committed to. I think the amount of technology that we are allowed to use, and the amount of technology that is allowing for interaction with clients will help assist in that as we reduce our travel.
Because we, like other asset management and financial services companies, the largest carbon impact we have is really on our travel. Our businesses tend not to have many other things that are carbon emitting outside of our buildings and our travel and therefore if we can reduce the amount of travel, we are much more likely to reach our goals, in Barings case, of net zero in 2030.
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