Efforts made to boost contributions has paid off for the Australian pension fund sector. 

Out of all th e pension funds in the AsianInvestor annual study of the Asia-Pacific region's 300 largest institutional investors, Australia's saw the highest combined rise in assets under management last year.

In aggregate, the Australian pension funds in the AI300 rankings saw their AUM grow by 31.34% to $3,382 billion by end-2018 from $2,575 billion a year earlier.

Among the biggest movers were Construction & Building Unions Superannuation, up with 47.63%, and Hostplus Superannuation Fund, up 36.07%. 

The only Australian pension fund listed to see a dip in AUM was QSuper with a 6.39% drop.

Richard Tan

According to Richard Tan, Asia portfolio specialist at global advisory firm Mercer, this upward Aussie trend is set to continue.

“Employer and employee contributions have been growing steadily in Australia resulting in an increasing AUM to back this higher contribution base,” Tan told AsianInvestor. “This trend will likely continue, if not increase in accordance to plans currently in place to increase Australia’s employer contribution rate further over time.”

In contrast, Japan's ageing demographics saw its pension funds post a combined AUM decline.

GROWING ALTERNATIVES

What unites pension funds across the region, though, is their growing interest in alternative investments as they continue to struggle with lowly yields, an uncertain economic and political environment, and the challenge of meeting retiree payouts.

Among those hoping for an easier life through increased allocations to alternatives are relatively smaller Japanese corporate pension funds.

“From an investment standpoint – given the recurring volatility found in global public markets – Apac pension funds are increasingly looking to diversify their portfolios, including looking more closely at the alternatives asset class for both portfolio diversification and potential return outperformance,” Tan said.

Some are reviewing portfolios with plans to perform some degree of portfolio stress-testing, while others are contemplating adjusting their investment strategy at the periphery to try to address any immediate risks that may be unique to their portfolios.

“More experienced investors indicate that they will continue with their long term strategy of investing across different economic cycles preferring to avoid a market-timing approach. Other than a heightened awareness and focus over the potential impact of Brexit and the Sino-US trade war – we can’t say really say if any markets stand-out above any others,” Tan said.