Pension funds looking overseas for solutions

Added 1st October 2015

Pension funds around the world are increasingly looking beyond their borders to address their investment needs, a report by the Association of the Luxembourg Fund Industry revealed.

Pension funds looking overseas for solutions

In North America, pension funds’ overseas investments grew to 21% of the region’s total portfolio in 2014, from 16% in 2008. The region’s pension funds grew to $27.21trn in 2014 from $15.8trn in 2008.

In Europe, the average portion of pension fund portfolios allocated to foreign markets increased to 34% in 2014, from 32% in 2008 - with the Netherlands, Finland and Portugal investing the highest percentage of their pension fund portfolios overseas in the last six years. Foreign investment by the Netherlands made up 76% of the country’s total portfolio in 2014. Its pension

funds totaled $6.8trn in 2014.

Pension funds in the Asia Pacific region expanded their foreign investments to 31% of the region’s total portfolio in 2014, as compared to 19% in 2008. The total assets of the region’s pension funds are $4trn.

Hong Kong and Japan are the most aggressive investors in foreign markets within Asia, with Japan’s pension fund allocation to foreign markets rising from 16% in 2008 to 32% in 2014.

Globally, pension funds allocated 44% of their total portfolio to equities, 28% to bonds, 26% to alternatives and 2% to money market products in 2014.

Allocation varies considerably from region to region, with North America allocating 48% of total assets to equities, Asia Pacific 40%, Europe 37%, and South America 34%.

The US, Canada, Japan and the Netherlands are the countries that pursued the largest equity investments in 2014, allocating $12trn, $986bn, $662bn and $582bn respectively to this asset class.

Japanese pension funds experienced the largest increase in the share of equities within their total portfolio, with the share of equities increasing from 17% in 2008 to 32% in 2014.

Global pension funds’ allocation to alternatives jumped 117% to $9.7trn in 2014 from $4.4trn in 2008. 

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