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ALFI Denise Voss

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Investment by pension funds increases globally but remains restricted in some markets

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Pension funds around the world are increasingly looking beyond their borders to address their investment needs, according to the Association of the Luxembourg Fund Industry’’s (ALFI) global pension fund report.

The report – Beyond their borders: evolution of foreign investment by pension funds – produced by PwC Luxembourg, looks at the growth of pension funds globally, the asset allocation of pension funds on a regional basis and the foreign investment of pension funds. It found that South America’s pension funds showed the highest growth rate globally, with assets soaring from USD184 billion in 2008 to USD528 billion in 2014, a 19.2% compound annual growth rate (CAGR).
 
In terms of investing overseas, foreign investment for the pension funds of the majority of OECD countries (excluding the US) accounted for about 25% on average of their total pension investments in 2008, but jumped to almost 31 per cent in 2014. 
 
Denise Voss (pictured), Chairman of ALFI, says: “As the baby boomer generation approaches retirement and life expectancy continues to improve, public sector pension liabilities will grow. At the same time the need for greater personal savings for retirement income is growing. This study provides more clarity on the global investments of pension funds, demonstrating the opportunities offered by global investing and how some markets are approaching this, but also highlighting how pension fund regulations differ from one country to the other. In particular it highlights the regulatory constraints on some pension funds in the amount they can allocate to investment funds or in foreign investments and suggests the impact this could have on their growth.”
 
Dariush Yazdani, Partner of PwC Luxembourg Market Research Centre, adds: “The new millennium has changed the playing field for pension funds. There are significantly more people retiring today than there were even a decade ago and this is putting pressure on pension funds' investment strategies. But even in the midst of new challenges, pension fund managers are facing a future brimming with opportunities. The unique ability of pension funds to focus on long-term investments allows them to absorb short-term volatility while bearing market and liquidity risk through diversification – one of the most effective means of achieving diversification is through foreign exposure.”

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