There is definite proof that sustainability-focused funds are outperforming their conventional counterparts. But some experts believe the traditional explanations for this are wrong.
Taiwan, China and South Korea are expected to post the highest growth rates in pension assets, reshuffling the present distribution of market share.
In the same study, Allianz Global Investors projects the pace of pensions will quicken across Asia as its old-age dependency ratio deteriorates. It estimates that by 2050, every 100 people in the working population will have to support 70 pensioners in Japan. Similarly, this old-age dependency ratio will hit 63 in Taiwan, 64 in South Korea, 59 in Singapore, 58 in Hong Kong, 39 in China, 38 in Thailand, and 21 in India.
Defined benefit-type pension systems have become increasingly unsustainable in Asia due to falling birth rates and increasing longevity. These schemes have been gradually replaced by defined contribution systems in Asia since 2000.
Among the defined contribution systems in Asia, three are mandatory û Hong Kong, Singapore and Taiwan. China, Japan and South Korea run their systems on a voluntary basis, while in India and Thailand only require them for civil servants.
Brigette Miksa, head of international pensions at Allianz Global Investors, says ôgovernments will increasingly look to capital market investments managed by external asset managers to achieve the returns they need.ö She adds that professional asset management can help secure sustainability of public pensions in the future.
Defined contribution schemes offer transparency, portability and cost control for sponsors. It also transfers responsibility to funds and investment risks to individuals, while creating better prospects for high returns.
Miksa predicts the highest growth of corporate pension assets will take place in Taiwan (28.9%), China (23.1%) and Korea (22.9%). By 2015, total assets under AsiaÆs corporate pensions will rise from the present Ç251.9 billion ($369.87 billion) to Ç 1.049 trillion ($1.540 trillion). ôSingapore will still grow but it will no longer be the biggest market,ö she says.
By 2015, China will become the largest by size at 38.5%. South Korea will follow at 19%, India at 15%, Singapore at 10.2%, Hong Kong at 9.2%, and Thailand at 4.4%. Despite high growth, TaiwanÆs assets will still be the smallest in Asia at 3.5%.
She also estimates that ChinaÆs National Social Security Fund will see its assets increase to Ç97 billion ($142.43 billion) over the next two decades, and that AsiaÆs public pension funds will have a smaller role in financing government projects.
Total assets of public pensions are now worth Ç858 billion ($1.259 trillion), and she forecasts that these will rise by 9.2% regionally in the coming decade and by 17.2% in AsiaÆs emerging markets.
ôThe good news is a lot of these changes happen fairly slowly and often predictably,ö says Douglas Eu, chief executive officer for Asia-Pacific at Allianz Global Investors, adding there is a need to adapt to the changes.
Meanwhile, Joachim Faber, chief executive officer of Allianz Global Investors, says he is interested in entering the Indian market in the near future. He says the feasibility of such a move is currently being studied.
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