Pension fund assets are expected to reach over $61 trillion (€55tn) over the next five years, according to a report by the Association of the Luxembourg Fund Industry (Alfi).
Against a backdrop of low interest rates in many developed countries, as well as increasingly volatile equity markets, many pension funds are having to adapt their strategies and look beyond their own borders in the search for yield, the study also found.
Alternatives will play an increasingly important role in portfolio allocation. By the end of 2018, pension fund alternative assets rose to $11.6 trillion from $9.2 trillion in 2014.
Equity continues to hold the crown – but growth in percentage term has turned negative as allocation has fallen from 60% in 1998 to just under 40% in 2018.
Alfi highlighted how regulations governing pension fund foreign exposure differ drastically. While the majority of countries surveyed do not set any limits regarding foreign investments, some have put a cap on exposure to countries that are not in the European economic area or the Organisation for Economic Co-operation and Development.
Corrine Lamesch, the association’s chairwoman, said: “Navigating the terrain of complex local requirements can be challenging for asset managers.”
For those pension funds seeking exposure to global markets, Ucits remained a key vehicle, according to the study.
“We expect this trend to continue given the sound regulatory framework, the high level of investor protection and the depth of global capability embedded in the structure,” Lamesch said.In regional terms, Latin American pension funds are forecast to see the strongest yearly growth rate, with assets increasing by over 12% to reach just $2.4 trillion.
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