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"Sovereign pension funds in this region have seen tremendous growth in recent years, along with the rapid growth in assets of sovereign wealth funds,ö says Naomi Denning, Watson Wyatt's head of investment consulting for Asia-Pacific. She attributed the growth in assets partly to strong Asian equity returns in 2007.
Over the next five years, these ôincreasingly influential institutional investorsö are likely to become the future role models for institutional funds, she says. Their emerging clout will have significant implications for services and products offered by fund managers and other intermediaries across the region, she adds.
The fastest growing sovereign pension fund in Asia-Pacific û Australia's Future Fund with assets of $44 billion at the start of the year û jumped up 122 places to take the 66th position in the rankings. Its asset growth is largely a result of receiving capital contributions from the Australian government, sourced from budget surpluses, Watson Wyatt says.
Among the sovereign pension funds in Asia ex-Japan, China's National Social Security Fund has grown significantly, moving up to the 38th position (from 69) in the overall rankings. India's Employees Provident Fund is in the 68 the position (from 88), Singapore's Central Provident Fund is in the 22nd position (from 32) and Thailand's Government Pension Fund is in the 241st position (from 285). Each of these funds posted more than 30% growth in assets last year.
ôLarge pension funds, notably the top sovereign funds, will continue to grow and be successful if they remain adaptable and prioritise excellent governance and risk management,ö Denning says. ôAs their societal influence increases, these leader funds will be expected to set the gold standard in all aspects of investment so as to be able to deliver against growing liabilities in unstable financial conditions.ö
The total assets of the worldÆs largest 300 pension funds grew by over 14% in 2007 to around $12 trillion, adding around $1.5 trillion to the previous yearÆs figure.
The US remains the country with the largest market share of pension fund assets (making up 43% of the total), although its share has been eroded (from 54% in 2002) due to a weak dollar and various significant developments around sovereign pension funds elsewhere. Japan has the second largest market share at 14%, largely because of the Government Pension Investment Fund of Japan which is still at the top of the ranking, a position it has held since 2002, with $1.07 trillion in assets. The UK, Netherlands and Canada all have the third largest market share of 6% each.
JapanÆs Government Pension Investment Fund is way ahead of the pack. A far second is NorwayÆs Government Pension with $370.9 billion, followed by KoreaÆs National Pension with $231.9 billion.
Apart from JapanÆs Government Pension Investment Fund of Japan and KoreaÆs National Pension, there are others in Asia that made it to the top 20 of Watson WyattÆs global ranking of sovereign pension funds this year. These are TaiwanÆs Postal Savings Fund with $129.4 billion, SingaporeÆs Central Provident Fund with $94.9 billion, ChinaÆs National Social Security with $70.7 billion and IndiaÆs Employees Provident with $43.1 billion.
The AU$85 billion ($61.6 billion) Australian super fund has some exposure to indebted property developer Evergrande. Meanwhile, China’s construction finance is part of its core strategy in real estate.
Investors are seeing the risks, but also the opportunities of the logistics sector. Warehousing their fears for the moment, they can see it's a good conduit to high-growth assets.
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