Asia-Pacific retirement funds remain concerned about the challenge of raising their growing foreign allocations, said top pension and social-security executives in Australia this week at a forum organised by Citi.
Asian pension funds in particular are also worried about how to provide a sufficient income for retirement, and the issue of annuities was heavily debated, says Vanessa Wang, Citi’s Asia-Pacific head of pension services.
The entities present – which between them manage over $700 billion in AUM – included funds from Korea, Taiwan, Hong Kong, Singapore, Malaysia, Thailand and China. Also present were senior members of the Australian government, including the assistant treasurer and the minister for financial services and superannuation. (See below for a list of attendees.)
The biggest Australian superannuation funds have 30-40% of their portfolios in foreign investments and that proportion is set to rise further.
Super funds seem to take the view that their offshore allocations to regions such as Asia should grow, since that is where the higher growth and returns are likely to be, says Wang. Moreover, the very strong Aussie dollar means they have firepower to make more cross-border investments and the incentive to diversify out of it in case it weakens substantially.
Moves by both Asian and Australian funds to set up offices abroad confirm the trend to diversify offshore. For example, AustralianSuper set up an office in Beijing this year, while Korea's National Pension Service set up an office just last month in London to add to its branch in New York.
One theme of the forum was how funds go about doing this and the opportunities for Australian and Asian funds to collaborate.
The event rounded off with a private roundtable discussion involving the Asian pension executives in attendance.
The biggest issue raised on the panel – and one that prompted heated debate – was over the challenges pension funds face in providing an income stream in retirement, notes Wang. That is, not just the issue of accumulating the capital and providing a lump sum, but ensuring it generates reasonable income for a long enough period.
A major question was how Asian DC funds can provide an annuity, which most do not at present.
Some speakers argued that foreign insurance firms from, say, Japan or the US should be invited to underwrite annuities in smaller Asian countries, as otherwise these countries will find it difficult to afford such a provision.
One example where it is proving of interest, says Wang, is that Australia-based Challenger is attracting annuities buyers in Japan. The cross-border offering of annuities could potentially raise demand, she adds, including for the high-interest-rate Aussie dollar to the low-yielding yen.
Attendees at the event included:
- Bill Shorten, minister for employment and workplace relations, financial services and superannuation
- David Bradbury, assistant treasurer and minister assisting for deregulation
- Nicholas Sherry, former senator and minister for superannuation
- Pauline Vamos, chief executive of the Association of Superannuation Funds of Australia
- Ross Jones, deputy chairman of the Australian Securities and Investments Commission
- Jeremy Cooper, chairman for retirement income at Challenger
- Michael Dwyer, CEO of First State Super
- Mark Sainsbury, chief investment officer of First State Super
- Mark Burgess, general manager of the Future Fund
- Don Yeo, deputy CEO of Singapore's Central Provident Fund
- A. Huzaime bin Abdul Hamid, head of strategic operations at Malaysia’s Employees Provident Fund
- Variya Wongprecha, deputy secretary general of the Government Pension Fund in Thailand
- Lau Ka Shi, chairman of the Hong Kong Trustees’ Association Trustee Board and the Hong Kong Hospital Authority Provident Fund; and chief executive of BCT Group
- Yu Gesheng, vice chairman of China's National Council of Social Security Fund
- Lee Chan-Woo, CIO of South Korea's National Pension Service
- Chang Che-shen, chairman of Taiwan's Public Service Pension Fund