Pension funds increase alternative assets allocation

The global institutional pension funds have continued to shift to alternative assets according to the recent study from the Thinking Ahead Institute on global pension assets which looked at the 22 largest major markets (the “P22”).

The study also confirmed that the market in 2019 saw global institutional pension fund assets bounce back and grow 15% to US$46.7 trillion ($69.75 trillion) at the year end, with Australia, Canada, Japan, the Netherlands, the UK and the US remaining traditionally the seven largest markets for pension assets (the “P7”) and accounted for 92% of the P22.

The shift to alternative assets came at the expense of equities and bonds, which were down 16% and 1%, respectively, for the last two decades. By comparison, in 1999 only 6% of P7 pension fund assets were allocated to private markets and other alternatives.

According to the institute’s co-head, Marisa Hall, on top of that the market also showed a noticeable pick-up in developing stronger strategies around their people, with stronger leadership through the chief executive and the chief financial officer roles and greater role specialisation in certain asset classes.

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Willis Tower Watson’s head of strategic advisory, Jessica Melville, stressed that large asset owners would have the opportunity to shape the next 10 years and therefore they were increasingly rising to the challenge to ensure that their assets are managed responsibly, in particular given the presence of natural disasters like bushfire.

“We expect this to grow in importance, with a significant reallocation of capital likely over the next decade, especially with respect to climate change,” she said.

“The funds that can integrate these issues into their beliefs framework, leverage tools to build portfolios that incorporate these dimensions of risk, and measure success through multiple lenses over an appropriately long horizon, will deliver the strongest outcomes to their members.”