Asian Pension Funds Plan To Allocate More In Alternatives

Pension funds in the Asia Pacific region are planning to allocate more into alternative investments including private equity and infrastructure, according to the results of a survey conducted by State Street.

Among the 100 pension funds surveyed in the region, 57% plan to increase their exposure to private equity in the next three years, while 54% plan to allocate more to infrastructure.

Nearly eight in ten of respondents in Singapore and Hong Kong plan to increase their exposure to single-manager hedge funds.

In contrast to the strong desire among pension funds to allocate more into alternatives, a vast majority of these institutions feel they lack understanding of the risks associated with the asset class.

Just 27% say their abilities of managing such risks are very good or excellent. Only around 22% say their institutions are very strong at addressing longer-term strategic factors affecting their portfolio, and even less, around 6%, say they can manage their liquidity risks most effectively.

To help address some of these issues, 96% of pension fund professionals in Asia Pacific surveyed say that the funds they work for are planning to make one or more major changes to their governance models.

Over the next year, 56% expect the balance of responsibilities between board and management will be adjusted, and anticipate the process for recruiting new board members to be changed.

Nearly half are also planning to revise incentive models. Hong Kong and Singapore pension funds see increasing the autonomy of the investment function as a way to strengthen governance support, with over 60% of them expecting this change in the coming year compared to just 37% globally.

Around 96% of pension funds in Australia and 73% of those in Japan have expressed interest in environmental, social, governance (ESG) investing over the next three years.

A majority of them are looking to hire managers with ESG capabilities, as they start to consider their investment strategies from an ESG perspective.

Around 59% of pension funds in the region say they are under pressure to cut cost, with more than half of respondents considering pooling assets in the next three years, says the report.

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