Key Takeaways
- • CHANGE Global, which manages emerging markets strategies for the $225.3 billion Teacher Retirement System of Texas and the $76 billion Connecticut State Retirement System, has doubled its assets under management over the past 12 months, per the report.
- • CHANGE Global landed a $50 million emerging markets mandate from the $25.2 billion State Universities Retirement System of Illinois as part of a broader search for diverse and startup managers.
- • The MSCI EM Index returned 42.7% for the 12 months ending in June, versus 20.9% for the S&P 500 and 23.7% for the All-Country World Index.
- • Technology makes up about 44% of the MSCI EM, and three stocks (TSMC, Samsung, and SK Hynix) account for nearly 30% of the index, raising concentration concerns among allocators.
- • Allocators are targeting specific countries and sectors, including Taiwan, South Korea, and Brazil, rather than emerging markets broadly.
Summary
Large institutional investors are reassessing emerging markets after years of underweighting the asset class, driven by strong returns and concentration risk in U.S. equities. Institutional Investor reports that CHANGE Global, which manages emerging markets strategies for the $225.3 billion Teacher Retirement System of Texas and the $76 billion Connecticut State Retirement System, has doubled its assets under management in the past 12 months. Founder Thea Jamison said interest in emerging markets is "rising dramatically," adding that public plans, foundations, and endowments "for the first time have a real sense of urgency about it."
The firm recently won a $50 million emerging markets mandate from the $25.2 billion State Universities Retirement System of Illinois, part of a larger search for more diverse and startup managers. Michael Schlachter, the system's chief investment officer, said much of the growth appears to be in non-U.S. equities and that it "makes sense to be weighted globally," while cautioning that U.S. equities "have been on a tremendous run right now."
Performance data supports the reallocation case. The MSCI EM Index returned 42.7% over the 12 months ending in June, outpacing the S&P 500's 20.9% and the All-Country World Index's 23.7%. Jamison argues the current cycle "may be more rewarding and longer" than the 2001–2010 emerging markets bull run, and sees opportunities in Taiwan and South Korea, where semiconductor investment is driving activity, and in Brazil, where conditions are improving after a prolonged period of unusually high interest rates.
Skeptics point to risks. Mark Headley, executive chair and portfolio manager at Matthews, said the U.S. is "massively over-owned" and emerging markets "significantly under-owned," but noted that technology's 44% weighting and the 30% concentration in TSMC, Samsung, and SK Hynix create headwinds. He flagged weak China earnings and high inflation in some markets, while arguing the diversity of the asset class favors active management. Valbona Schwab, CIO at Children's Health in Dallas, cautioned that some renewed interest may simply be exposure to the semiconductor and AI cycle through the EM benchmark. Dallas Children's Health seeks opportunities across the market rather than a broad call on the asset class, using an extension program for liquid benchmark exposure with downside management and an alpha overlay, and manages its semiconductor exposure, particularly in Korea, separately.
The firm recently won a $50 million emerging markets mandate from the $25.2 billion State Universities Retirement System of Illinois, part of a larger search for more diverse and startup managers. Michael Schlachter, the system's chief investment officer, said much of the growth appears to be in non-U.S. equities and that it "makes sense to be weighted globally," while cautioning that U.S. equities "have been on a tremendous run right now."
Performance data supports the reallocation case. The MSCI EM Index returned 42.7% over the 12 months ending in June, outpacing the S&P 500's 20.9% and the All-Country World Index's 23.7%. Jamison argues the current cycle "may be more rewarding and longer" than the 2001–2010 emerging markets bull run, and sees opportunities in Taiwan and South Korea, where semiconductor investment is driving activity, and in Brazil, where conditions are improving after a prolonged period of unusually high interest rates.
Skeptics point to risks. Mark Headley, executive chair and portfolio manager at Matthews, said the U.S. is "massively over-owned" and emerging markets "significantly under-owned," but noted that technology's 44% weighting and the 30% concentration in TSMC, Samsung, and SK Hynix create headwinds. He flagged weak China earnings and high inflation in some markets, while arguing the diversity of the asset class favors active management. Valbona Schwab, CIO at Children's Health in Dallas, cautioned that some renewed interest may simply be exposure to the semiconductor and AI cycle through the EM benchmark. Dallas Children's Health seeks opportunities across the market rather than a broad call on the asset class, using an extension program for liquid benchmark exposure with downside management and an alpha overlay, and manages its semiconductor exposure, particularly in Korea, separately.
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