LDN - Business

Q&A: Volatility creates opportunity in emerging markets - PGIM head

[February 13, 2018] By Suzanne Barlyn

(Reuters) - The only thing abnormal that the head of Prudential Financial Inc's asset management unit sees in the recent burst of stock market volatility is that it had not happened sooner. PGIM Chief Executive Officer David Hunt, whose unit manages $1.2 trillion, spoke with Reuters about the opportunity it triggers and more.

Q: What do you make of the market correction?

A: It's not at all unexpected and a bit overdue.

Obviously, we look at that as long-term investors and for us, this means that we can get in at a better entry point.

Q: Is there an opportunity?

A: If you take the 10-year view, a large portion of the growth from worldwide economies will come from emerging markets. Over the last 18 months, it's been hard to get into that at a reasonable price. Now the numbers are looking more positive.

Q: Which emerging markets are appealing?

A: Looking at the world in terms of countries is not the way to do it. Industry trends now are more powerful. Trends around cities and urbanization are more powerful.

We think the internet has the opportunity to grow disproportionately in emerging markets than in developed markets. We've been big investors in China, India and others in the internet, payment platforms and other technologies that we think will leapfrog a lot of existing technologies in the developed world.

Q: What is PGIM's best-performing investment?

A: In 2017...good balanced portfolio did really well across the portfolio. Real estate investments were very strong.

We had a record performance in our private asset classes. Private credit performed extremely well. The most important thing was that more than 90 percent of our assets performed better than their benchmarks.

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Q: Are there troublesome pockets of real estate?

A: We were well ahead of the trend of the difficulties in retail....That's now been a bit overdone, so we are now stepping back into malls where we think they have been sold off badly or where we think we can create a really interesting experience.

On the other side, the internet is creating really different uses for real estate....Every major U.S. city needs to have four or five big complexes not too far from the city center...to set up and create the last line of delivery to the home...And my favorite one: self-storage. There is no more powerful human emotion than the desire to hold on to stuff. And it's not a big returner, but it's a good returner - about a 7-9 percent return.. and very low risk.

Q: Where do you see PGIM fitting in as passive managers take over more of the marketplace?

A: My general thesis on the passive piece is that it's both overblown and misunderstood.

If you look at the classes we manage, there is really no passive management of real estate. You can't own this building here and lease it in a passive way. There is no passive approach to commercial mortgages, to private debt. There is so far very little passive in the public fixed income markets.

The misunderstood part of it is that the rise of passive...has been a healthy competition for active management....You can't just hug a benchmark and charge to do that. You need to have high active shares, you need to be taking risks, and you need to be performing.

(Reporting by Suzanne Barlyn; Editing by Carmel Crimmins and Lisa Shumaker)

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