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Asian pension fund declines

Depreciation of the Japanese yen and a bias toward Asian equities were factors in the decline of Asian pension fund assets last year.
In 2013, Asia Pacific accounted for 24.7% of the world’s top 300 pension funds in terms of assets, down from 26.3% the previous year, according to a report from Towers Watson and Pensions & Investments.
“Last year the total AUM of Asia-Pacific pension funds decreased, partially explained by the negative performance of Japanese funds that have been heavily invested in fixed income,” said Naomi Denning, managing director of investment services for Asia Pacific at Towers Watson.
“In addition, the Japanese stimulus program that led to the depreciation of the yen also caused the asset value of Japanese funds in US dollar terms to be lower.”
While pension fund AUM in Asia declined, it increased in other regions. North America now accounts for 41.4% of the world’s top 300 pension fund assets, up from 40.5%, and Europe comprises 29.5%, up from 28.5%.
Denning added that the strength of US and European equity markets have increased the asset value of funds with strong equity exposure. However, Asian funds tended to have more exposure to domestic or Asia ex-Japan equities, which, by comparison, underperformed.
Towers Watson believes the equity market run is likely coming to an end.
“Despite ongoing high performance from equities many funds, particularly more mature funds, continue to diversify into other asset classes as they de-risk their portfolios. There is also broad acknowledgement that quantitative easing and low interest rates will not last forever and that recent exceptional equity market growth is unlikely to repeat in 2015.”
In 2015, pension funds will find investment conditions less favorable.
“Investors have been justifiably preoccupied with managing risk for a number of years but now are increasingly searching for elusive yield.”
Most funds will struggle to meet their annual return requirements and they will turn to alternative markets and strategies, she added.
The total assets of the world’s largest 300 pension funds was $15trn in 2013, up 6% over the previous year. Japan’s Government Pension Investment Fund remains the largest in the world, with $1.2trn in assets under management, according to the report. 

Part of the Mark Allen Group.