Allianz Global Investors has released a report showing the four largest Asian pension reserve funds in China, Australia, Japan and South Korea are changing their governance and investment policies in an effort to maximise their returns, increasing their influence on the financial market.
The funds are retreating from public project financing and focusing on funds management, increasing their outsourcing to private asset managers by diversifying their investments and reforming the composition of their boards in an effort to increase professional governance structures and independence from governments.
Public pension reserve funds have traditionally been subject to political control and invested in low-return government projects such as infrastructure and housing loans.
The senior pensions analyst at Allianz, Alexander Boersch, said: “Demographic development requires investment in higher yielding assets. Given the ageing population, the capital of reserve funds is an important factor in smoothing contributions and the more efficient the risk-return profile, the less the burden on the public pension system.”
The report stated that the rising share of international and equity investments in reserve fund portfolios would increase the power of pension reserve funds in the financial markets. Their size will also bring issues such as internal governance, transparency and political influence into the “public spotlight”.
