Bringing you live news and features since 2013
Bringing you news, views and analysis since 2013

50706

Asia’s pension funds allocate further to alternatives: Cerulli Associates  

RELATED TOPICS​

Major pension funds in Asia have been diversifying further into alternatives, driven by the need to deliver solid returns and combat inflationary pressures as they face a looming underfunding crisis, according to Cerulli Associates’ newly released report, Asian Retirement Markets 2023: Building Security Against Uncertainty. 

Over the past decade, Asian pension funds have gradually diversified their portfolios overseas and into riskier assets such as equities and alternatives. This trend continues apace, Cerulli writes, as they mature and adopt more sophisticated investment strategies. In addition, the poor macroeconomic environment has put pressure on Asian pension funds, with major funds in markets such as Taiwan and Malaysia impacted by global market losses and contributions that have been unable to keep pace with benefit payouts. 

More importantly, many Asian pensions have urgent needs for yields to meet their liabilities and support rapidly aging populations. For instance, Korea’s National Pension Service (NPS) is projected to run dry in 2055, and local industry observers have called for a more aggressive investment strategy, including overseas diversification, to help extend the scheme’s longevity. 

Against this backdrop, most Asian pension schemes’ alternative investments have grown by double digits between 2018 and 2022. As a proportion of their portfolios, alternative allocations for major pension funds rose between 2020 and 2022. Growth was led by Korean pensions: the NPS’ alternative allocations grew 5.5 percentage points and the Korean Teachers’ Pension Fund’s rose 4.1 percentage points during the two-year period. In 2022, alternatives accounted for 10.1 per cent of total retirement assets in the Asia-ex-Japan region, the highest seen for that asset class in since 2018, Cerulli says. 

The challenges faced by pension funds in alternatives investing are areas where asset managers can step in to provide their expertise, the firm says. Nearly 41 per cent of Asian pensions surveyed by Cerulli cite a “limited understanding” of alternatives, while one-third say they lack in-house expertise when investing in alternatives.  

“While Asian pensions continue to boost their alternatives portfolios, it will likely take many more decades for them to build sufficient in-house expertise in the area. Hence, alternatives remain a greenfield for asset managers,” says Shaun Ng, analyst with Cerulli. “Managers seeking to win alternatives mandates from Asian pension funds should be able to source suitable deals, demonstrate a strong track record in specific alternative asset classes, and share knowledge with their clients.”

Latest News

Iress has announced that it has extended its partnership with Dow Jones Newswires to give..
The Financial Conduct Authority (FCA) writes that in new rules, it has set out a..
GAM has announced it has reached a definitive agreement to transfer its Management Company activities..

Related Articles

infrastructure headline
The new Labour government has launched a GBP7.3 billion National Wealth Fund which will target private capital to support the UK’s growth ambitions...
The new Labour government has launched a GBP7.3 billion National Wealth Fund which will target private capital to support the..
Tom McPhail, lang cat
Today’s news of a landslide victory from the UK’s Labour party, finds that the markets had mostly factored in a widely predicted Labour win...
Today’s news of a landslide victory from the UK’s Labour party, finds that the markets had mostly factored in a..
Pensions might not feature at the top of the political parties’ manifesto promises this election, but their role in driving the UK’s growth ambitions is increasingly on investors’ agendas...
Pensions might not feature at the top of the political parties’ manifesto promises this election, but their role in driving..
Duncan Higgs, Bfinance
Bfinance has released its latest report, "Investment Management Fees: Fairness Revisited," with a comprehensive analysis of current trends and challenges in investment management fees and costs across various asset classes...
Bfinance has released its latest report, "Investment Management Fees: Fairness Revisited," with a comprehensive analysis of current trends and challenges..
Subscribe to the Institutional Asset Manager newsletter

Subscribe for access to our weekly newsletter, newsletter archive, updates on the site and exclusive email content.

Marketing by