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Asian pension funds likely to invest more in alternatives, WTW says

By Hui Ching-hoo   
February 28, 2024

Asian pension funds are likely to ramp up exposure to alternative investments in the long run, predicts Thinking Ahead Institute, the research unit of UK insurance brokerage and advisory firm WTW.

The pension funds currently lag behind global peers, which were allocating one-fifth of assets to non-mainstream investments last year.

According to Jayne Bok, head of investments, Asia at WTW, Asian pension funds have come a long way in terms of diversification, not just in cutting back on their domestic exposure, but also stepping up allocations to alternatives.

“Many of the more sophisticated public pension funds in our region are now allocating 10% to 15% to alternatives, and I’d expect to see allocations continue to move closer to 20% in line with more developed pension markets,” she says in a statement on February 26.

Meanwhile, the 22 largest pension markets in the world saw returns from their investments recover and assets grow 11% to US$55.7 trillion last year after a 16.7% decline in 2022 when markets were slammed by US rate hikes to fight inflation.

The estimated return for a reference portfolio of global pension funds was 16.6%, recovering from minus 17.4% in 2022, Thinking Ahead Institute says.

In Asia, Bok notes that many pension markets are still in the accumulation phase, and that reforms announced are likely to accelerate their asset growth. She points out that Australia, Hong Kong, Japan and South Korea have all achieved significant increases in pension assets as a percentage of gross domestic product.