Key Takeaways
- • Asia ex-Japan pension funds allocate 8% of their investments to alternative assets, the highest share globally and nearly double the 4.2% global average, according to Mercer's annual study.
- • South Korea leads Asian pension funds with an 11% alternatives allocation, followed closely by Taiwan at 10%.
- • The study covered corporate mandatory and government pension schemes in 16 global markets collectively managing more than US$5.3 trillion in assets.
- • Asia ex-Japan pension funds raised foreign equity exposure from 38% to 48% of equity portfolios since 2013, driven mainly by Taiwan and Malaysia.
- • Mercer's Janet Li, wealth business leader for Asia, says growing interest in alternatives reflects a search for portfolio yield amid coronavirus-related uncertainty.
Summary
Asia ex-Japan pension funds allocate 8% of their investments to alternative assets, the most of any region and nearly twice the global average, as they seek higher yields, according to Mercer's annual study released in a statement on September 6. The US consulting firm examined asset allocation trends across corporate mandatory and government pension schemes in 16 global markets that collectively manage more than US$5.3 trillion in assets. By comparison, the global average allocation to non-mainstream assets stands at 4.2%.
Among Asian markets, South Korea has the highest alternatives share at 11%, with Taiwan close behind at 10%. Mercer says Korean pension funds have steadily increased their allocations to alternatives since the firm began the annual study in 2013.
The study also points to a shift in equity allocations. Since 2013, Asia ex-Japan pension funds have raised their exposure to foreign stocks from 38% to 48% of equity portfolios, a change driven primarily by Taiwan and Malaysia. Janet Li, Mercer's wealth business leader for Asia, described the trend as a "natural evolution" as funds mature, adding that diversification away from home markets "helps to mitigate concentration risks and create more return drivers."
Li also said it was "encouraging" to see Asian pension funds accelerate environmental, social and governance (ESG) investing, whether through greater market awareness or portfolio allocation. She framed ESG considerations as increasingly fundamental, stating that global systemic risks are having a growing impact on investment returns.
In the statement, Li expects continued growing interest in alternatives across Asia as investors seek to enhance portfolio yield amid coronavirus-related uncertainty.
Among Asian markets, South Korea has the highest alternatives share at 11%, with Taiwan close behind at 10%. Mercer says Korean pension funds have steadily increased their allocations to alternatives since the firm began the annual study in 2013.
The study also points to a shift in equity allocations. Since 2013, Asia ex-Japan pension funds have raised their exposure to foreign stocks from 38% to 48% of equity portfolios, a change driven primarily by Taiwan and Malaysia. Janet Li, Mercer's wealth business leader for Asia, described the trend as a "natural evolution" as funds mature, adding that diversification away from home markets "helps to mitigate concentration risks and create more return drivers."
Li also said it was "encouraging" to see Asian pension funds accelerate environmental, social and governance (ESG) investing, whether through greater market awareness or portfolio allocation. She framed ESG considerations as increasingly fundamental, stating that global systemic risks are having a growing impact on investment returns.
In the statement, Li expects continued growing interest in alternatives across Asia as investors seek to enhance portfolio yield amid coronavirus-related uncertainty.
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