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www.nicsa.org
Beyond their Borders:
Evolution of foreign
investment by pension funds
www.nicsa.org
Global Pension Funds assets grew
at a 10.2% CAGR from 2008 to 2014
1,780 1,903 2,109 2,128 2,182 3,119 3,039...
www.nicsa.org
Breakdown of Pension Funds assets by country
Source: PwC Market Research Centre
24,553.0
2,979.7 2,424.7 1,5...
www.nicsa.org
Future growth of pension assets?
Proportion of the world population aged 60 years or more
The global populat...
www.nicsa.org
Old-age dependency ratio in major EU countries
31.6
36.1
59.9
0.0
20.0
40.0
60.0
80.0
2010 2020 2050
Germany...
www.nicsa.org
Why Pension Funds are important
to the AM industry
Retail
26%
Institutional
74%
3%
25%
39%
33%
Pension
Funds...
www.nicsa.org
Evolution of asset allocation of Pension Funds
Source: PwC Market Research Centre
Evolution of asset allocat...
www.nicsa.org
Equity Bonds Alternatives Money Market
28% 26% 2%
Global Asset Allocation by Asset Class in 2014
44%
Regiona...
www.nicsa.org
Further diversification through Foreign Investments
Foreign Investments
In 2008, foreign investments of pens...
www.nicsa.org
Why this trend…
Some countries are currently modifying their local legal
frameworks and softening the barrie...
www.nicsa.org
How do Pension Funds allocate to foreign
investments
Best practices
for investing
abroad
Developing asset
ma...
www.nicsa.org
1) Establishing “outposts” in specific markets
Best practices
for investing
abroad
Developing asset
manageme...
www.nicsa.org
2) Acquisitions or partnerships with asset managers
that have expertise in foreign markets
Best practices
fo...
www.nicsa.org
Best practices
for investing
abroad
Developing asset
management teams
abroad
Acquiring or
partnering with
as...
www.nicsa.org
Use of Investment Funds by Pension Funds
Investing in Investment funds
Allocation of pension funds to
invest...
www.nicsa.org
So what is the good news?
Assets of pension funds are set to increase by more
than 6% CAGR till 2020, to rea...
www.nicsa.org
Thank you
Key contacts
Denise Voss
Chairman, ALFI
denise.voss@alfi.lu
+352 22 30 26 1
Dariush Yazdani
Partne...
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The State of Global Pensions Funds: Addressing Future Needs Now

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Pension funds around the world are increasingly looking beyond their borders to address their investment needs according to the recently released global pension fund report produced by PwC Luxembourg and commissioned by the Association of Luxembourg Fund Industry (ALFI).

The report - which looks at the growth of pension funds globally, the asset allocation of pension funds on a regional basis and the foreign investment of pension funds - found that South America’s pension funds showed the highest growth rate globally, with assets soaring from USD 184 billion (bn) in 2008 to USD 528 bn in 2014, a 19.2% compound annual growth rate (CAGR).

In terms of investing overseas, foreign investment for the pension funds of the majority of OECD countries (excluding the US) accounted for about 25% on average of their total pension investments in 2008, but jumped to almost 31% in 2014.

NICSA invites you to join us for a special presentation on the global pension fund report commissioned by ALFI. The webinar will be presented by Dariush Yazdani, Partner of PwC Luxembourg Market Research Centre.

“…even in the midst of new challenges, pension fund managers are facing a future brimming with opportunities. The unique ability of pension funds to focus on long-term investments allows them to absorb short-term volatility while bearing market and liquidity risk through diversification...” – Dariush Yazdani

Published in: Economy & Finance
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The State of Global Pensions Funds: Addressing Future Needs Now

  1. 1. www.nicsa.org Beyond their Borders: Evolution of foreign investment by pension funds
  2. 2. www.nicsa.org Global Pension Funds assets grew at a 10.2% CAGR from 2008 to 2014 1,780 1,903 2,109 2,128 2,182 3,119 3,039 3,264 4,108 4,927 5,589 6,385 6,879 6,862 15,774 18,268 20,450 20,752 22,691 25,910 27,168 184 281 490 536 591 549 517 0 5,000 10,000 15,000 20,000 25,000 30,000 35,000 40,000 2008 2009 2010 2011 2012 2013 2014 Asia Pacific Europe North America South America 21,002 24,560 27,976 29,006 31,849 36,458 37,585 Evolution of global assets of pension funds 2008 – 2014 (USD bn) Source: PwC Market Research Centre
  3. 3. www.nicsa.org Breakdown of Pension Funds assets by country Source: PwC Market Research Centre 24,553.0 2,979.7 2,424.7 1,550.1 1,038.1 768.1 276.4 252.8 223.5 208.7 165.4 0 5,000 10,000 15,000 20,000 25,000 United States United Kingdom Canada Netherlands Australia Switzerland Denmark Brazil Germany Finland Chile USDbn Pension Funds Assets by Country in 2014 Pension Funds Assets Per Capita in 2014 94,141 92,248 76,114 68,234 48,935 46,921 43,927 38,211 9,284 2,698 1,247 0 10,000 20,000 30,000 40,000 50,000 60,000 70,000 80,000 90,000 100,000 Switzerland Netherlands United States Canada Denmark United Kingdom Australia Finland Chile Germany Brazil USD
  4. 4. www.nicsa.org Future growth of pension assets? Proportion of the world population aged 60 years or more The global population is ageing at an unprecedented rate and the worldwide old-age dependency ratio is forecasted to reach 25.4% in 2050, up from 11.7% in 2010. 1950 2010 2050 11.7% 25.4% Source: UN report World Population Ageing 1950-2050 and PwC Real Estate 2020
  5. 5. www.nicsa.org Old-age dependency ratio in major EU countries 31.6 36.1 59.9 0.0 20.0 40.0 60.0 80.0 2010 2020 2050 Germany 25.9 32.9 44.2 0.0 20.0 40.0 60.0 80.0 2010 2020 2050 France 25.2 29.9 42.1 0.0 20.0 40.0 60.0 80.0 2010 2020 2050 UK 30.9 36.1 62.3 0.0 20.0 40.0 60.0 80.0 2010 2020 2050 Italy 25.2 29.9 66.9 0.0 20.0 40.0 60.0 80.0 2010 2020 2050 Spain 28.6 33.7 59.7 0.0 20.0 40.0 60.0 80.0 2010 2020 2050 Greece Demographic challenges are shifting government pension structures away from traditional Defined Benefits (DB) schemes and “pay as you go” systems to Defined Contribution (DC) schemes. From DB to DC Source: United Nations (2014), World Population Prospects: The 2012 Revision
  6. 6. www.nicsa.org Why Pension Funds are important to the AM industry Retail 26% Institutional 74% 3% 25% 39% 33% Pension Funds Insurance companies Other institutionals Banks Breakdown of total European AuM (EUR 19tn) by type of investors in 2014 Source: EFAMA
  7. 7. www.nicsa.org Evolution of asset allocation of Pension Funds Source: PwC Market Research Centre Evolution of asset allocation of pension funds from 2008 to 2014 41% 41% 44% 41% 42% 44% 44% 36% 37% 33% 34% 31% 29% 28% 2% 2% 2% 2% 2% 2% 2% 21% 19% 21% 22% 25% 25% 26% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 2008 2009 2010 2011 2012 2013 2014 Equity Bonds MM Alternatives
  8. 8. www.nicsa.org Equity Bonds Alternatives Money Market 28% 26% 2% Global Asset Allocation by Asset Class in 2014 44% Regional Asset Allocation by Asset Class in 2014 Asset allocation of Pension Funds in 2014 Source: PwC Market Research Centre
  9. 9. www.nicsa.org Further diversification through Foreign Investments Foreign Investments In 2008, foreign investments of pension funds (excluding the US) accounted, on average, for about 30% of their total pension investments, rising to 35% in 2014. Overseas investments of pension funds for selected countries in 2014
  10. 10. www.nicsa.org Why this trend… Some countries are currently modifying their local legal frameworks and softening the barriers for pension funds to invest beyond their borders. Brazil: In 2009, the Brazilian Monetary Council (CMN) increased the limit on foreign investments from 3% to 10%. Poland: According to a bill issued in 2015, local OPFs (open pension funds) are allowed to invest a maximum of 20% of their total assets abroad, an increase from the prior limit of 5%. That limit is expected to reach 30% by next year. Chile: Chilean pension funds were allowed to invest 65% of their portfolios in foreign assets, but a reform, approved four years ago, now permits them to invest 80% in foreign assets. Source: PwC Market Research Centre
  11. 11. www.nicsa.org How do Pension Funds allocate to foreign investments Best practices for investing abroad Developing asset management teams abroad Acquiring or partnering with asset managers Investing in foreign funds Establishing “outposts” in specific markets abroad is one of the strategies for gaining foreign exposure. Another strategy includes acquisitions or partnerships with asset managers that have expertise in foreign markets. Investing in foreign funds is another key way to invest abroad. 1 2 3 1 2 3 Source: PwC Market Research Centre
  12. 12. www.nicsa.org 1) Establishing “outposts” in specific markets Best practices for investing abroad Developing asset management teams abroad Acquiring or partnering with asset managers Investing in foreign funds Establishing “outposts” in specific markets abroad is one of the strategies for gaining foreign exposure. 1 1 2 3 South Korean National Pension Service (NPS), seeking to expand its overseas investments, opened an office in London in 2012 followed by another in Singapore three years later. OPSEU Pension Trust, one of Canada's largest pension fund managers, also opened an office in Sydney in 2013. CPPIB launched new offices in New York and Sao Paulo in 2014 Source: PwC Market Research Centre
  13. 13. www.nicsa.org 2) Acquisitions or partnerships with asset managers that have expertise in foreign markets Best practices for investing abroad Developing asset management teams abroad Acquiring or partnering with asset managers Investing in foreign funds Another strategy includes acquisitions or partnerships with asset managers that have expertise in foreign markets. 2 1 2 3 In 2015, the CPPIB partnered with Unibail-Rodamco to grow its German retail real estate platform and acquired Antares Capital, the private equity lending unit of GE Capital. In 2013, Norges Bank Investment Management bought 49.9% of five office properties in the US, its first investment in the country, through a joint venture with TIAA-CREF. In 2012, Fidante Partners, which manages the Australian government’s pensions, bought a significant stake in MIR Investment Management, a specialist in Asia-Pacific equities. Source: PwC Market Research Centre
  14. 14. www.nicsa.org Best practices for investing abroad Developing asset management teams abroad Acquiring or partnering with asset managers Investing in foreign funds Establishing “outposts” in specific markets abroad is one of the strategies for gaining foreign exposure. Investing in foreign funds is another key way to invest abroad. 3 1 2 3 Peruvian pension funds invested USD 2.3bn through investment funds in 2010, while in 2014 the figure jumped to USD 13.6bn, which is a 56.2% CAGR for the time span. 3) Investing in foreign funds Source: PwC Market Research Centre
  15. 15. www.nicsa.org Use of Investment Funds by Pension Funds Investing in Investment funds Allocation of pension funds to investment funds have jumped from 25% on average in 2008 to 32% in 2014. Use of Investment Funds by Pension Funds for selected countries Nearly all mature pension markets tend to use investment funds when investing a large percentage of their assets abroad because they are one of the most effective and convenient vehicles for gaining exposure to international assets.
  16. 16. www.nicsa.org So what is the good news? Assets of pension funds are set to increase by more than 6% CAGR till 2020, to reach above USD 55tn. Pension funds are increasingly investing (USD 4.6tn) beyond their borders (on average, an increase from 30% to 35% between 2008 and 2014). Pension funds are also increasingly investing (USD 11.6tn) their assets through mutual funds (on average, a rise from 25% to 32% between 2008 and 2014).
  17. 17. www.nicsa.org Thank you Key contacts Denise Voss Chairman, ALFI denise.voss@alfi.lu +352 22 30 26 1 Dariush Yazdani Partner, PwC Luxembourg Market Research Centre dariush.yazdani@lu.pwc.com +352 49 48 49 21 91

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