Pension funds in the Asia Pacific will own an increasingly large chunk of the world’s assets under management, according to investment advisory firm WTW.
At the end of 2022, Asia Pacific accounted for 26.4% of assets in the world’s 300 largest pension funds, increasing from 25.5% in 2021, according to the Global Top 300 Pensions Funds report released by WTW’s Thinking Ahead Institute.
Asia Pacific’s share is expected to continue to increase as emerging markets in Asia continue their accumulating wealth and “coming online” with pension funds embedded in global financial markets, according to Jayne Bok, WTW’s head of investments in Asia.
This development is likely to continue for the next 10-15 years as most pension funds in the region are not expected to reach full maturity within those periods.
“Larger and more populous nations will drive this trend, but even medium-sized countries like Korea or Malaysia have accumulated significant pension wealth through their national schemes. Should more populous nations such as China or India enact some form of pension reform with emphasis on saving for retirement, this trend will only accelerate,” Bok told AsianInvestor.
At the same time, pension funds in more developed Asian markets will move into their mature phase where outflows can exceed inflows.
North American pension funds’ share of total assets, meanwhile, remained stable in 2022 at 45.6%, while Europe's share decreased to 24.1%.
The rising share of Asia-Pacific pension funds is part of an ongoing trend since 2002.
The region’s pension funds experienced the fastest increase as a proportion of global assets to 26% in 2022 from 19% in 2002, swapping spots with Europe for second place.
Europe's share of total assets climbed to 24% from 21% over the same period.
Aging populations in markets like Japan, Korea, China, Taiwan and Hong Kong, nevertheless, are likely to tip the balance for pension funds from inflows to outflows, due to declining birth rates and lower rates of immigration to offset population declines.
The drawdown on pension assets can be equally rapid, according to projections, although in most cases, this inflection point is still fairly far off beyond the 10 to 15-year timeframe, Bok pointed out.
“However, this trend may be offset by new Asian countries coming online, Thailand being a recent example of a nation that is considering such pension reform. Remember that Asia Pacific accounts for approximately 60% of the world’s population and its average age is still lower than Europe and the Americas,” she said.
In addition, given the importance of pension savings in ensuring longer-term economic stability, WTW sees many Asian nations encouraging additional supplementary savings schemes via the corporate or private sector, as well as setting surplus assets aside for a rainy day in the form of SWFs, Bok elaborated.
In a low-performing year in especially public markets, the 20 largest pension funds by assets under management (AUM) saw a drop of 7.3% in 2022, according to the report.
Yet, Asia Pacific’s share of assets in the top 20 grew to 43.1% from 41.0%, primarily because of India’s Employees’ Provident fund, which joined the top 20, Bok pointed out.