Pension funds globally will move to expand their in-house investment and risk management capabilities this year, according to research due to be published this month. They will also be looking to private markets as a means of boosting investment performance so that they can better match returns to their payout liabilities.
State Street’s 2015 Asset Owner Survey polled 400 defined-benefit (DB) pension funds globally, up from some 150 last year.
According to advance data seen by AsianInvestor, Asia-Pacific pension funds are among those aiming to significantly increase investment risk and insourcing this year. Almost half (48%) of respondents plan to strengthen their risk management teams, and 45% intend to expand their investment teams over the next three years.
For those DB schemes polled, 37% said the funds were in deficit and that the extent of the under-funding was considerable in some cases. The survey indicates that 3% of these DB scheme managers believe it would take them more than 20 years to eliminate their deficit entirely.
The trend towards insourcing of risk and investment management is expected to be largely focused on traditional public markets investments, according to State Street. But schemes are also looking to private markets as a means of boosting returns and aiding diversification, alongside a similar trend in the sovereign wealth fund space. Around half (48%) of respondents plan to increase their exposure to private equity over the next year.
However, as AsianInvestor reported in November, DB fund investors may have unrealistic expectations of their ability to take on more investment responsibility. Kevin Wong, head of sector solutions for Asia Pacific at State Street, said at the time: “Talent would likely be hard to come by, and funds should not underestimate the extent to which they need to build out their internal capabilities.”
He added that while the continued trend for insourcing may sound like bad news for asset management firms, pension funds would continue to outsource in key areas, such as alternatives, and forge deeper relationships with their key managers.
This seems to be underlined by the stream of mandates to have been announced or awarded in recent months across Asia. These have come from the likes of China's National Council for Social Security Fund, Japan's Government Pension Investment Fund, the Scientists and Engineers Mutual Aid Association in Korea, the Philippine Government Service Insurance System and Taiwan's Bureau of Labor Funds.