The drive towards greater investing in overseas markets and riskier asset classes is prodding pension funds across Asia to upgrade their technology platforms, but with only limited success to date, say investment industry and technology experts.
The 2018 global pension assets study released on February 5 by Willis Towers Watson, highlights the plodding rate at which Asian pension funds have adapted to new technologies over recent decades.
“The technology impacts on pension funds have been surprisingly light as evidenced by legacy systems that rely heavily on spreadsheets,” the report said.
The study, which covered 22 key pension markets around the world, noted how pension funds for the last 20 years had tended not to prioritise technological innovation.
Some signs of change may be beginning to emerge, though, according to some industry experts.
While many pension funds continue to rely too much on Excel and the like and on manual inputs for their various systems and processes, fund executives appear increasingly keen to discuss how new technologies could help them do things differently, according to Oliver Johnson, Asia head for SimCorp, which sells investment management software solutions to financial organisations.
It is a sentiment shared by Jayne Bok, head of investments for Asia at Willis Towers Watson, who believes pension funds are being forced to re-examine their technological requirements as they rethink their investment strategies in the current low-yield environment.
As AsianInvestor has previously reported, many pension funds in the region, from Korea's National Pension Service to Thailand's Government Pension Fund, are actively seeking new opportunities in global markets and venturing into alternatives investing such as private equity and hedge funds.
“Investing in alternatives requires more robust internal systems and governance processes. Most pension funds realise they are not equipped to deal with that kind of complexity,’ Bok told AsianInvestor.
For SimCorp’s Johnson, Thai and Malaysian asset owners seem to be leading the charge in emerging Asia.
There is growing interest in front-to-back technology platforms that can handle the entire investment life cycle—from front office operations to executing trades to post-trade execution and accounting, he told AsianInvestor.
One of its more recent deals was with Thailand's central bank, which selected SimCorp as its new investment management platform to support its monetary policy operations and the management of its $226 billion reserves.
Malaysia's Employees Provident Fund, is another institution keen on boosting its digital capabilities.
Chief executive officer Shahril Ridza Ridzuan told AsianInvestor that one of his key tasks since taking over in 2013 has been to turn EPF into a digital organisation.
“Roughly 70% of all our transactions are now done online,” he told AsianInvestor, adding that the fund continues to look at ways to digitise the various processes and platforms of the business.
In the more developed pension market of Australia, regulation is a key driver of technology adoption among Australia’s superannuation funds, Johnson said.
For instance, the Australian Prudential Regulation Authority and Australian Securities and Investment Commission requires pension funds to provide detailed disclosure of the underlying holdings.
“For fund structures or alternative investment funds, this is close to impossible without appropriate technology systems in place,” Johnson said.
In the other developed Asian pensions market of Japan the Government Pension Investment Fund (GPIF) is considering using artificial intelligence for asset management, according to a Cerulli Associates report on the Asian mutual funds industry published on January 16.
GPIF, the world’s largest sovereign pensions fund, is said to be planning to trial AI technology later this year, which is likely to prompt other investors to consider following suit, the report said.
Nevertheless, as WTW’s Bok notes, since many pension funds are government-owned, making sweeping or swift technology upgrades can be challenging.
In the past, the heavy cost of investing in technology infrastructure—which can run into millions of dollars—was also an obstacle.
That is becoming less of an issue, according to Simcorp’s Johnson.
“There are different pricing models available in the market today; it is no longer a large capex cost,” he said. “Even smaller pension funds can find ways to work with technology vendors that don’t require the kind of massive investments they might have needed in the past.”