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Asia pension funds stepping up alternatives

Pension funds in Asia Pacific are making a major shift in allocation, increasing exposure to risky investment classes over the next three years in order to boost returns, according to a State Street study.

Out of the 130 pension funds surveyed globally, a majority (88%) of Asia Pacific-based pension funds expect their appetite for investment risk to increase over the next three years, compared with 77% of respondents globally, according to the survey. 

“As volatility in the markets shows few signs of abating, pension funds in APAC are faced with challenging and complex liabilities while working to achieve the returns they need. They realise that they have to take on more risk,” said Kevin Wong, senior managing director and head of sector solutions for APAC at State Street Corp.

The findings also reflect that pension funds in the region show greater preference for direct loans compared with the global trend toward private equity.

About 60% of pension funds in Asia Pacific are planning to increase direct loan activity to third parties over the next three years, and 10% likely to start a direct loan program for the first time.

The survey also revealed that 57% of regional respondents intend to increase their exposure to real estate, with the corresponding figures for private equity and infrastructure at 45% and 41%, respectively.

In terms of fund of hedge funds, 32% plan to increase their allocation, 4% will reduce it and 18% will invest in the asset class for the first time.

About 42% of respondents were from the Americas, 36% from  Europe, the Middle East and Africa and 22% from Asia Pacific. 

Proactive approach

Pension funds in Asia Pacific also intend to adopt a more proactive approach to managing their assets. 

Over the next three years, 81% of respondents globally said they plan to increase the proportion of their portfolios to be managed in-house compared with 79% percent in Asia Pacific.

As a part of the shift towards in-house management of assets, more than half (53%) of pension funds in Asia Pacific are expecting to use more lower-cost strategies to achieve desired investment outcomes, as well as expanding the number of technology platforms and software solutions they employ (27%). 

Data management (46%), regulatory compliance (43%) and overall governance (38%) are the high priority areas that pension funds aim to strengthen in the next three years. 


Part of the Mark Allen Group.