This executive briefing explores how pension funds are adapting to the challenges of a new investment environment. The research presented in this report is based on an international State Street survey, conducted by the Economist Intelligence Unit in August 2014, of 134 senior executives in the pension fund industry.

1. ASSET OWNERS
ASSET OWNERSASSET OWNERS
Five Trends Reshaping the
Global Pension Fund Industry

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ASSET OWNERS
Executive Summary
• This executive briefing explores how pension funds are adapting to the challenges of a new
investment environment
• The research presented in this report is based on an international State Street survey, conducted by
the Economist Intelligence Unit in August 2014, of 134 senior executives in the pension fund industry
Five Trends Are
Reshaping the Industry
• RISK
3 out of 4 pension will ramp up their risk appetite as the search for
returns intensifies in a tough investment climate
• INVESTMENT
Private equity will be biggest winner from a surge in alternatives
investment by pension funds
• INSOURCING
Insourcing changes the game as 4 out of 5 pension funds plan to take
control of their destiny and manage more of their assets in-house
• PERFORMANCE
Pension funds set a new threshold for performance from their
asset managers
• GOVERNANCE
Half of pension funds will prioritize improvements to governance as
regulatory scrutiny intensifies

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ASSET OWNERS
In what region are you located?
Americas
42%
APAC
22%
EMEA
36%
3%
20%
77%
We are a regional institution,
operating in more than one
country across a single region
We are a global institution,
operating in more than one
region
We are an institution that
operates in only one country
Which best describes
your institution?
The research presented in this report is based on an international State Street survey of 134 senior
executives in the pension fund industry. The survey was conducted by the Economist Intelligence Unit in
August 2014. Respondents from 15 countries participated in the survey, with the majority being drawn
from the US, UK, Australia and Canada.
State Street 2014 Survey of Pension Funds – Geographic Focus
Source: State Street 2014 Asset Owner Survey, conducted by the Economist Intelligence Unit. Pension fund respondents.

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ASSET OWNERS
17%
31%
52%
Superannuation fund
Private sector pension or
retirement system
Public sector pension or
retirement system
Please select your institution type
Both DB
and DC
62%
Defined
benefit
(DB)
20%
Defined
contribution
(DC)
18%
Which best describes your institution?
Just over half of respondents came from public sector pension funds, nearly a third from private sector
pension systems, and 16 percent from superannuation funds. Most respondents came from
organizations that oversee both defined benefit (DB) and defined contribution (DC) funds.
State Street 2014 Survey of Pension Funds – Institution Types
Source: State Street 2014 Asset Owner Survey, conducted by the Economist Intelligence Unit. Pension fund respondents.

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ASSET OWNERS
Three-quarters of pension funds surveyed will ramp up their risk appetite as the search for
returns intensifies in a tough investment climate
Trend 1:
Getting Hands-On With Investment Risk
Source: State Street 2014 Asset Owner Survey, conducted by the Economist Intelligence Unit. Pension fund respondents.

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ASSET OWNERS
Q8. Do you expect your institution's investment risk appetite to:
3%
20%
55%
57%
41%
19%
2%
2%
2%
Over the next
year
Over the next
three years
Increase significantly Increase slightly Stay the same
Decrease slightly Decrease significantly
Survey Insights
• More than three
quarters of
respondents in
(77 percent)
expect their
institutions'
investment risk
appetite to
increase over the
next three years
• Nearly 60% see
such increased
appetite for risk
even in the next
12 months
Pension Funds Ramp Up Their Risk Appetite
Source: State Street 2014 Asset Owner Survey, conducted by the Economist Intelligence Unit. Pension fund respondents.

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ASSET OWNERS
Pension funds face a dilemma. Many say they would like to derisk their portfolios, but the current
environment requires them to weight their investments towards higher growth/higher risk strategies.
Success therefore requires them to strike a new balance on risk and return.
Interview Quotes – The Risk-Return Dilemma
Pension funds are stuck between an equity market that's been on a good run for many years and
a bond market that still looks expensive. Then on top of that you have all the Central Bank
interventions pressing rates down. Funds want to maximize their returns and at the same time try
to minimize risk. We are in territory we haven't been in before.
Robin Diamonte, Chief Investment Officer, United Technologies Corporation
The low interest rate environment has definitely been a real challenge for many investors,
including CalPERS. Right now, our required rate of return is 7.5 percent. To achieve this in the
current climate, we have followed a fairly growth oriented portfolio strategy. If you add up all our
equity and growth oriented assets, our private equity and public equity positions, it comprises
almost 62 percent of the plan’s total assets. It’s a relatively high allocation to growth assets for a
mature plan.
Wylie Tollette, Chief Operating Investment Officer, CalPERS

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ASSET OWNERS
Based on the survey results, private equity will be the biggest winner from a surge in
alternatives investment by pension funds. Emerging market investments are also
becoming more important.
Trend 2:
Big Bets on Alternatives
Source: State Street 2014 Asset Owner Survey, conducted by the Economist Intelligence Unit. Pension fund respondents.

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ASSET OWNERS
Q4. Please indicate whether your institution plans to make any
changes to its relative allocations.
Survey Insights
• 60% of
respondents see
an increased
allocation to
private equity
• Direct loans are
the second-most
desirable
alternative asset,
with 54% of
respondents
expecting to
increase direct
loan allocations
• One quarter of
respondents are
making first time
investments into
hedge funds
60%
54%
45%
39%
29%
20%
2%
6%
2%
2%
3%
3%
5%
7%
3%
9%
25%
27%
28%
28%
45%
50%
22%
29%
6%
5%
5%
1%
21%
20%
Private Equity
Direct Loans
Real Estate
Infrastructure
Hedge funds (single
manager)
Fund of hedge funds
Will increase existing allocation
Will decrease existing allocation
Will invest for the first time
Will make no change to existing allocation
N/A (no allocation and no plans to invest)
Pension Funds’ Alternative Asset Allocations
Source: State Street 2014 Asset Owner Survey, conducted by the Economist Intelligence Unit. Pension fund respondents.

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ASSET OWNERS
Q4. Please indicate whether your institution plans to make any changes to its relative allocations.
58%
50%
50%
44%
44%
38%
12%
15%
8%
16%
8%
21%
Direct loans
Hedge funds
(single manager)
Real estate
Infrastructure
Private equity
Fund of hedge
funds
A Shift in Allocations – Top Three Countries
50%
43%
29%
29%
25%
14%
4%
7%
21%
7%
18%
25%
Private equity
Direct loans
Infrastructure
Real estate
Hedge funds
(single manager)
Fund of hedge
funds
Will increase existing allocation
Will invest for the first time
75%
54%
46%
39%
11%
7%
7%
7%
4%
36%
36%
Private equity
Direct loans
Real estate
Infrastructure
Fund of hedge
funds
Hedge funds
(single manager)
Australia UK US
Source: State Street 2014 Asset Owner Survey, conducted by the Economist Intelligence Unit. Pension fund respondents.

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ASSET OWNERS
Expectations for allocations from:
4% 3% 6%
10% 13%
22%
20% 21%
16%
49% 46%
41%
16% 17% 14%
0%
25%
50%
75%
100%
UNHW
Investors
Institutional
Investors
Pension
Funds
Increase significantly
Increase slightly
Not change
Decrease slightly
Decrease significantly
Don't know
Why?
53%
35%
13%
Portfolio performance
challenges
Portfolio
diversification issues
Improved terms
Why?
Belief No. 1: Strong Flows
Source: State Street 2014 Hedge Fund Survey, conducted by the Citigate Dewe Rogerson
47%
39%
15% Dissatisfaction with
performance
Dissatisfaction with
fees
Low risk tolerance
NOT FOR DISTRIBUTION

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ASSET OWNERS
Q2. Where do you see investment opportunity for your
institution increasing or decreasing? Survey Insights
• Vast majority
(81%) of
respondents see
investment
opportunity in
developed
markets
increasing
• Nearly two-thirds
(62%) are bullish
on emerging
markets
opportunities
19%
11%
5%
62%
52%
21%
16%
35%
65%
3%
7%
1%
1%
1%
1%
Developed Markets
Emerging Markets
Frontier Markets
Strongly increasing Slightly increasing
No change Slightly decreasing
Strongly decreasing N/A
Momentum of Regional Investment Opportunities
Source: State Street 2014 Asset Owner Survey, conducted by the Economist Intelligence Unit.

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ASSET OWNERS
Insourcing changes the game as the vast majority of pension funds surveyed plan to
manage more of their assets in-house
Trend 3:
DIY on Asset Management
Source: State Street 2014 Asset Owner Survey, conducted by the Economist Intelligence Unit. Pension fund respondents.

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ASSET OWNERS
Q6. Over the next three years, do you plan to:
Survey Insights
• The great majority
(81%) of pension
funds expect to
increase the
internally
managed
proportion of their
portfolio
• The right
insourcing
strategy can
deliver substantial
cost savings
• Insourcing also
enables pension
funds to get
closer to their
assets and to
reduce agency
risk
19%
81%
Make no change to the proportion
of your portfolio that is managed in-
house
Increase the proportion of your
portfolio that is managed in-house
Insourcing: Asset Owners Become Asset Managers
Source: State Street 2014 Asset Owner Survey, conducted by the Economist Intelligence Unit. Pension fund respondents.

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ASSET OWNERS
Q11. Will your institution seek to make any of the following
changes within the next three years? Survey Insights
• A greater number
of funds and
investment
schemes is the
most widely
expected change
(76%). This
points to greater
complexity.
• 53% of
respondents see
increased
deployment of
lower-cost
investment
strategies
Evolution of Pension Funds’ Investment Tools and Strategies
76%
53%
43%
14%
2%
2%
6%
18%
22%
45%
51%
68%
Number of funds/schemes
Usage of lower-cost strategies to
achieve desired investment outcomes
Number of technology
platforms/software solutions
Number of external consultants for your
investment portfolio
Will seek to increase Will seek to decrease Will make no change
Source: State Street 2014 Asset Owner Survey, conducted by the Economist Intelligence Unit. Pension fund respondents.

16. Most Institutional Investors Understand the
Value of Data
16 Source: State Street 2014 Data and Analytics Survey, conducted by Longitude Research
2
18
34
47
It is a low-level strategic priority
(near the bottom)
It is a mid-level strategic priority
It is the most important strategic
priority
It is a high strategic priority (near the
top)
How do most senior leaders at your institution view the importance of
investment data and analytics relative to other major strategic priorities?
(% of all respondents)
“Our investment in
data and analytics capabilities
are a source of competitive
advantage for us”
23%
43%
Strongly agree
Somewhat agree
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17. Source: State Street 2014 Data and Analytics Survey, conducted by Longitude Research
Asset Managers Are Farther Along on the Data Journey Than
Asset Owners
17
23
38
40
32
35
34
Starter
Mover
Innovator
Asset Owner Asset Manager
• Most asset managers are
confident in their data
abilities: 40% of asset
managers are Data
Innovators, versus only
23% who are Data
Starters
• Asset owners are less
confident: 34% are Data
Innovators, almost the
same proportion as Data
Starters (32%)
Data Starters, Movers and Innovators
(% respondents, grouped by asset owners
an asset managers)
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18. 40
50
9
2
Reporting requirements will increase, but our data capabilities will cope adequately
Reporting requirements will increase, and our data capabilities will struggle to cope
Reporting requirements will largely remain unchanged from today
Reporting requirements will ease
Source: State Street 2014 Data and Analytics Survey, conducted by Longitude Research
Many Believe They Will Struggle to Cope With
More Regulation
18
55%Asia-Pacific =
Which of the following statements best characterizes your expectations for regulatory reporting
requirements over the next 3 years?
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ASSET OWNERS
Pension funds set a new threshold for performance from their asset managers
Trend 4:
The Relationship With Asset Managers Evolves
Source: State Street 2014 Asset Owner Survey, conducted by the Economist Intelligence Unit. Pension fund respondents.

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ASSET OWNERS
Q5. Have you experienced any of the following over the past
year with respect to your external managers?
Survey Insights
• Understanding
the risk-adjusted
performance of
external
managers is the
most common
challenge for
pension finds –
58% struggle with
that
• Aligning interests
and incentives in
the second-most
common
challenge (52%)
• Justifying the cost
of external
mangers is a less
common issue
(29%)
Pension Funds’ Relationship With External Managers
18%
16%
10%
8%
6%
40%
36%
28%
28%
23%
Gaining a complete picture of risk-adjusted
performance
Ensuring their interests are aligned with ours
Conducting due diligence post-hire to ensure
managers are meeting our expectations
Conducting due diligence when hiring new
managers
Justifying the fees
Major challenge Minor challenge
Source: State Street 2014 Asset Owner Survey, conducted by the Economist Intelligence Unit.

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ASSET OWNERS
Q5. Have you experienced any of the following over the past
year with respect to your external managers? – Ensuring their
interests are aligned with ours Survey Insights
• Ensuring external
managers’
interests are
aligned with those
of pension funds
is a particularly
strong concern
among Australian
respondents
• This is also
perceived as a
challenge by
pension funds in
the UK
Concerns About Alignment of Interest with External Managers
27%
14%
7%
31%
39%
29%
Australia
UK
US
Major challenge Minor challenge
Source: State Street 2014 Asset Owner Survey, conducted by the Economist Intelligence Unit. Pension fund respondents.

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ASSET OWNERS
Pension funds are facing a choice to either continue to purchase asset management services or to build
the capabilities in-house.
Interview Quotes – The Build-or-Buy Dilemma
“Instead of saying here’s a product for you to invest, they (asset managers) are collaborating to
develop investment solutions that are more appropriate for your particular needs.”
“Can we insource some components of the process and outsource other components?
Traditionally we’ve bought the whole car. Maybe we need to buy the engine or buy the brakes or
buy the engineering capability and just build the car ourselves.”
Richard Brandweiner, CIO, First State Super”
Source: State Street 2014 Asset Owner Survey, conducted by the Economist Intelligence Unit. Pension fund respondents.

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ASSET OWNERS
Changing Investor Demands and Profiles
Multiple responses accepted.
Source: State Street 2014 Asset Manager Survey, conducted by FT Remark
20%
23%
57%
47%
35%
47%
32%
47%
19%
30%
43%
37%
0% 20% 40% 60% 80% 100%
Germany
Japan
Canada
UK
US
Australia
Strongly agree
Somewhat agree
To what extent do you agree or disagree: Changing client demands are causing a fundamental
shift in our overall business strategy?

24. 24
ASSET OWNERS
Expected Sources of Growth: Investment Strategies – Australia
Source: State Street 2014 Asset Manager Survey, conducted by FT Remark
80%
7%
3%
3%
0%
0.0%
7%
Multi-asset solutions
Traditional actively managed equity
Traditional actively managed fixed income
Passive equity
Alternative mutual funds
Passive fixed income
Other
Which one of these investment strategies do you think will contribute most to your business
growth over the next three years?

25. <CLASSIFICATION> 25
ASSET OWNERS
Half of pension funds surveyed will prioritize improvements to governance as regulatory
scrutiny intensifies
Trend 5:
Fortifying Governance
Source: State Street 2014 Asset Owner Survey, conducted by the Economist Intelligence Unit. Pension fund respondents.

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ASSET OWNERS
Q12. What level of priority will your institution place on
strengthening the following areas over the next three years? Survey Insights
• Regulatory
compliance is top
of mind for
pension funds –
61% see it as
high priority and
another 35% as
medium priority
• Strengthening
governance is
high on the list for
over half of
pension funds
• Data
management is
another high
priority for 55% of
respondents
61%
55%
51%
24%
10%
35%
39%
41%
43%
46%
4%
6%
8%
33%
44%
Regulatory compliance
Data management
Overall governance
Cybersecurity
Contingency planning (ie, disaster
recovery, business continuity)
High Priority Medium Priority Low Priority
Pension Funds’ Top Priorities for Improvement
Source: State Street 2014 Asset Owner Survey, conducted by the Economist Intelligence Unit. Pension fund respondents.

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ASSET OWNERS
Pensions will increasingly need an approach that emphasizes oversight, transparency and disclosure.
Regulation is certainly a factor in this trend. The increased use of complex alternatives may also require
pension funds to bring in more professional trustees or specialist advisors.
Governance With Expertise
Pensions funds have had a lot of discussions with the regulator about the expertise of board
members… The pension funds agreed that they should have more specialists with asset and risk
management skills on the board.
Peter Borgdorff, Director, Pensioenfonds Zorg en Welzijn (PFZW)
25% of respondents say that the increasing complexity of portfolios
will require them to make changes to the composition of their trustees.
Source: State Street 2014 Asset Owner Survey, conducted by the Economist Intelligence Unit. Pension fund respondents.

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ASSET OWNERS
Focus for the Future
To succeed in today’s complex investment environment, pension funds will need to develop strategies
in each of the following five areas:
Manage the Risk Budget Across the Portfolio
Invest in specialist tools and capabilities to improve analysis across multi-asset portfolios.1
Master the New Investment Mix
Learn how to blend alternative investments with low cost strategies to strike a new balance on risk
and return.
2
Think Strategically on Insourcing
Understand where your in-house talent can add more value. Create the operating model to
optimize in-house asset management.
3
Develop Strategic Partnerships With Key Managers
Many pension funds are concentrating on developing fewer but deeper relationships with their
asset managers.
4
Professionalize Governance
Ensure professional oversight on risk and governance. Make better use of expert trustees and/or
specialist advisors.
5
Source: State Street 2014 Asset Owner Survey, conducted by the Economist Intelligence Unit. Pension fund respondents.

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ASSET OWNERS
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