AI300: Pensions eye asset shifts as outlook darkens

After a solid 2017, pension funds across Asia are carefully monitoring global economic and political developments even as they seek to lift allocations to global equities and alternatives.
AI300: Pensions eye asset shifts as outlook darkens

Strong investment gains boosted the assets of Asia’s leading pension funds last year, but with the market outlook clouded by a host of uncertainties some are turning more cautious or remain keen to diversify even as others rejig portfolios in favour of growth assets.

The findings of AsianInvestor's latest annual list of the region's top-300 asset owners shows the 65 pension funds among their number grew their assets under management (AUM) by 9.3% year-on-year to around $4.7 trillion.

Japan's 11 pension funds led the pack by AUM with combined assets of around $2.1 trillion, while Australia had the highest number of AI300 constituents with 34.

The biggest individual climber was Australia’s Construction and Building Unions Superannuation (Cbus); with a 47.6% AUM gain it rose 32 places to No. 182 in the AI300 rankings.

A Cbus spokesman told AsianInvestor last month that Australian and international shares plus property had been its best-performing investments in the 12 months to the end of May 2018.  

However, in line with other institutional investors expectations have since been lowered at Cbus for growth assets. The firm is also considering progressively cutting its exposure to the Australian stock market and investing more overseas.

“We are not looking to make significant changes but are reviewing our longer-term asset allocation weights between Australian and international shares. This is as much from a risk as [it is from a] performance perspective,” the spokesman said.

That said, the increasingly fashionable view is that equities generally face a more uncertain and volatile outlook if the extreme monetary accommodation of previous years continues to be slowly reversed in developed markets and US-driven trade tensions intensify.

The latter is of particular concern to Shahril Ridza Ridzuan, the former chief executive of Malaysia’s Employee Provident Fund (EPF) and now managing director at sovereign wealth fund Khazanah.

Shahril Ridzuan

“The biggest existential threat for investors is if trade conflicts spiral out of control," he said at an AsianInvestor event in late June when still at the $200 billion EPF, which is up one place at 52 on the latest AI300 list. "It’s very easy for domestic politics to turn international trade into a victim of politicians’ needs to satisfy a group of voters."

Ridzuan previously also said that the fund wanted to increase this year the amount it invested overseas, albeit in private assets as well as listed assets. 

That faith in international markets seems justified, with EPF’s overseas investments accounting for more than a third of total investment income in the first three months of 2018 and 27.3% of total assets. Ridzuan nonetheless acknowledged in the fund's results statement in June that the outlook for global markets for the rest of the year was uncertain and merited caution.

In addition, private markets are not the relatively cheap refuge from public markets that they may have once been with valuations increasingly pricey, Teerapong Ninvoraskul, head of the private market investment department at Thailand’s Government Pension Fund (GPF) told AsianInvestor recently.

Teerapong said GPF would still continue to selectively raise its allocations to private markets -- much like HSBC InsuranceAllianzCPPIBMercer Super and other asset owners -- but noted that return expectations had come down compared with three years ago.

Teerapong Ninvoraskul


The fund, ranked 185 in the AI300, saw the value of its investments grow to $26.3 billion at the end of June. About 3% of its portfolio is allocated to global private equity and about 2% to global infrastructure, Teerapong said.


South Korea’s National Pension Service, which saw its AUM swell to $566 billion at the end of May 2018 and climbed four places to 13th spot on the AI300 is also eyeing higher equity and alts allocations. 

In a statement on its website, the pension fund said it plans to diversify risks by scaling down its allocation to fixed income and investing more in equities, both domestic and foreign, and in alternatives as part of a broader portfolio diversification strategy.

Equities accounted for 38.5% of its portfolio at the end of May, with alternatives taking up 10.6% and fixed income 50%.

In the Philippines, state pension fund Government Service Insurance System (GSIS) is also seeking to diversify its investments to improve returns. “It is never good to put all our eggs on one basket,” GSIS's president, Jesus Clint Aranas, said when announcing its 2017 results.

The fund, ranked 248th on the AI300, ended 2017 with a 69% improvement to $1.8 billion in net income and a 9% gain to $20.6 billion in total assets.

The strong gains were largely thanks to the strong performance of its equity holdings. The Manila stock market had a stellar 2017 with the benchmark PSEi market index hitting a record high before retreating in 2018.

In January this year, GSIS issued a request for proposal seeking two external managers to manage two multi-asset mandates of $400 million each; by this July, it had shortlisted eight managers who will move to the next stage of the selection process.

The AI300 list of leading asset owners covers Australia, Japan, China, Hong Kong, Singapore, Malaysia, Indonesia, New Zealand, Vietnam, Philippines, India and Thailand.

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