Retirement assets in Asia ex-Japan saw a compound annual growth rate (CAGR) of 9.8% between 2017 and 2021, reaching total investable assets of US$4.6 trillion in 2021, a new report finds.
Meanwhile, the percentage of assets outsourced to managers grew to 36.8% in 2021, from 30.6% in 2017, mainly driven by greater overseas exposure, Cerulli Associates says in its latest report, Asian Retirement Markets 2022: Weaving Stable Safety Nets.
Since the pandemic, many public pensions have been compelled to rethink their strategies to improve the sustainability and resilience of their funds to ensure the continuity of retirement security for their ageing members.
As part of this trend, public pension funds are increasing their exposure to alternatives, foreign assets, and environmental, social, and governance (ESG) investments for greater portfolio diversification and more sustainable investment returns.
In 2021, alternatives accounted for 8.4% of total retirement assets in the region, the highest seen for that asset class in five years. The continued diversification towards alternatives and private assets is particularly seen in Australia, Korea, and Japan.
“There is scope for pension funds to explore investing in more sub-asset classes within alternatives as they seek to raise their allocations to alternative investments. For example, there are opportunities for managers to work with pensions for their private market strategies via specialist funds, co-investments, and co-underwriting for private equity,” says Cerulli senior analyst Shannen Wong.
Meanwhile, pension funds continue to increase their exposures to risk assets. Mixed assets and equities saw steady growth in market share over the three years ending 2021, at the expense of bonds and cash allocation.
Public pensions also continue to show their commitment to ESG investing, as part of their fiduciary duties. “Given that there are no uniform evaluation methods for ESG performance across different industries, ESG investing remains a challenge for most investors, and managers that can clearly lay out their approaches to tackle these challenges will stand out,” says Wong.