If South Korea’s experience with private equity, and losses at its National Pension Service, haven’t given pension fund managers in Asia Pacific second thoughts about alternative investments, then consider a few other points.
The heavy overweighting of alternative assets in North America (27.5%), versus both Asia Pacific (8.2%) and Europe (10.9%), as identified by the Thinking Ahead Institute’s 2025 report on the top 300 global pension funds, does not appear to have delivered anything like comparable pensions sufficiency or pension fund outperformance in North America.
According to the Milliman public pension funding index in September, although the 100 largest US public pension plans are now on average 85.4% funded, 11 plans remain less than 60% funded, and the deficit between estimated plan assets and liabilities stands at US$971 billion.
Meanwhile, funding ratios for pension funds in Europe, which have much lower exposure to alternatives, are much better. In the Netherlands, funding ratios for the engineering industry fund PMT, the public sector fund ABP and the metal industry fund PME ranged from 118.2% to 123.9%.
South Korean policymakers have explicitly cited the Dutch pension system as a blueprint for their own pension reform, and with good reason, it appears.
Although officials from the Dutch funds credited good performance of alternative assets as contributing to the results, they put a lot more emphasis on strong performance of equities as well as shifts in interest rates.
This is not to say that pension funds in Asia Pacific should shun alternatives. Such investments should definitely be considered if they present good risk-adjusted returns that suit the funds’ time horizons. But the investments should be evaluated patiently and prudently, especially when constrained by lack of internal expertise and experience.
North America, and especially the US, has had a far longer experience with alternatives than Europe or Asia Pacific. But North American pension funds’ high exposure to alternatives does not seem to have delivered any commensurate level of pension sufficiency and security for the aged.
Fragmentation across markets, cultural considerations and a host of other factors suggest that the European, rather than the US pension model, is probably a better template for Asia Pacific pension funds.
