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 (ALFI) in its new global pension fund report.
The report, Beyond Their Borders: Evolution of Foreign Investment by Pension Funds, was produced by PwC Luxembourg.
It 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.
On a regional basis, North America’s pension funds represented the largest assets at a global level, having reached $27.21 trillion in 2014, up from $15.8 trillion in 2008, according to the report.
Taken globally, pension funds allocated 44 percent of their total portfolio to equities, 28 percent to bonds, 26 percent to alternatives and 2 percent to money market products in 2014.
Allocation varies considerably from region to region, with North America allocating 48 percent of total assets to equities, Asia Pacific 40 percent, Europe 37 percent, and South America 34 percent.
The US, Canada, Japan and the Netherlands pursued the largest equity investments in 2014, allocating $42 trillion, $986 billion, $662 billion and $582 billion respectively to this asset class.
Japanese pension funds experienced the largest increase in the share of equities within their total portfolio, which increased by 21 percent from 2008 to 2014.
In contrast, South Korea’s pension funds showed the largest decline in their equity share, decreasing by 22 percent from 2008 to 2014.
The report also found that South America’s pension fund assets increased from $184 billion in 2008 to $528 billion in 2014, a 19.2 percent compound annual growth rate.
In terms of investing overseas, foreign investment for the pension funds of the majority of Organisation for Economic Co-operation and Development countries (excluding the US) accounted for about 25 percent on average of their total pension investments in 2008, but jumped to almost 31 percent in 2014.
Denise Voss, chairman of ALFI, commented: “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.
