Growth in Asia-Pac pension fund assets outpaces global rate

Singapore

PENSION funds in the Asia-Pacific are punching above their weight, accounting for a substantial and growing share of the global pensions market, a Global 300 research study by Willis Towers Watson's Thinking Ahead Institute has found.

Assets of seven Asian pension funds surged by 25.6 per cent in 2017 to an aggregate sum of US$3.3 trillion, and accounted for 44.3 per cent of the world's top 20 pension funds' assets.

Singapore's Central Providend Fund (CPF) was ranked the world's ninth largest - retaining its 2016 ranking - with US$269.13 billion in assets at end-2017. As at the second quarter 2018, the total CPF members' balance stood at S$376.63 billion.

The research estimated global pension assets at US$41 trillion in 2017, and the top 300 at US$18.1 trillion.

Within the Global 300, the combined assets under management of all 49 Asia-Pacific pension funds rose 20 per cent to almost US$5 trillion, outpacing the Global 300 funds' overall increase of 15 per cent.

In terms of assets, Japan's Government Pension Investment is in pole position with assets of US$1.44 trillion. Norway's Government Pension Fund is second largest with US$1.06 trillion.

Jayne Bok, Willis Towers Watson head of investments for Asia, said: "The increased number of the largest funds originating from the Asian region is reflective of a longer term trend. Some progress has been made in terms of governance structures and resiliency, but there is much more that needs to be done. These countries are especially interesting to monitor as they are typically in the earlier stages of maturity and can continue to adapt and develop their investment models.''

Ms Bok said strong performance gains in 2017 helped to boost Asian pension funds. "However, uncertainties over geo-political and economic events that led to increasing market volatility in 2018 are seen as headwinds to Asia and some emerging markets. We are living in a world with no easy answers for investors and plenty of stormy seas ahead.

"As the economic cycle continues to mature and the risks of a recession increase, funds with a longer term horizon should consider a broader opportunity set by looking beyond their home region and mainstream asset classes in order to maximise diversity and create resiliency. It is a good time to review portfolios now and how they would perform under different risk scenarios.''

Among the 49 Asia-Pacific funds, there were 32 sovereign and public sector pension funds with combined assets of US$4.4 trillion.

CPF is a defined contribution scheme where members may use their CPF savings to fund the purchase of property, or to save and invest for retirement. Amounts in the CPF Investment Scheme (CPFIS), however, have declined through the years. This likely indicates a marked preference among members to leave sums to earn CPF's default guaranteed interest rates.

As at end-June, the total Ordinary Account savings in CPFIS came to S$17.4 billion, a 32 per cent drop from the S$25.8 billion invested in 2006. The latest balance is about 13 per cent of the total balance of S$130.8 billion in the OA.

Special Account sums in CPFIS stood at S$5.2 billion at end-June, accounting for 5.3 per cent of the total SA balance of S$96.7 billion. The SA amount in CPFIS is slightly lower than S$5.5 billion in 2006.

Ms Bok said the past 12 months were a period of change for large pension funds. "We saw Asian sovereign and public sector pension funds seeking or taking action to diversify investments as reflected by new mandates awarded to their asset managers.'' Examples of these mandates include sustainability-linked or ESG portfolio, global infrastructure and private market investments.

North American funds remained the largest, accounting for 42.3 per cent of all assets in the research, followed by the Asia-Pacific with 27.3 per cent, and Europe's 26.5 per cent.