Asian Pension Funds Increase Exposure to Alternative and Foreign Equities | Alternatives

Asian pension fund investors continue to further diversify their assets outside the region, according to Mercer’s 2022 Asset Allocation Insights report, which summarizes the decisions pension fund investors make with their investment strategies in each region .

Source: Mercer Asset Allocation Outlook 2022

“In our view, this trend is one of the most critical drivers of more resilient and diversified portfolios,” said Simon Coxeter, manager research manager for Asia-Pacific at Mercer. Asian investor.

While the trend shows a change in behavior, many investors still focus much of what they invest in their home markets. For example, foreign fixed income securities remained a relatively small share of fixed income assets in the region. It has increased only modestly to 13% in the three years since the last edition of the report.

Source: Mercer Asset Allocation Outlook 2022

“While this may be justifiable from an investment perspective in certain parts of the portfolio, such as defensive fixed income, the phenomenon of home bias remains one of the most important elements of portfolio inefficiency. in the area,” Coxeter said.


Asian pension fund investors may have made changes to their investments, but they maintained stable allocations over the report’s three-year measurement period, with only small increases for equities and alternatives during that time. period.

Source: Mercer Asset Allocation Outlook 2022

“The strong performance of public equities over the few years to the end of 2021 has likely contributed to the increased equity exposure, although in some cases these higher allocations may also reflect a move towards higher equity exposures. less conservative, growth-oriented portfolios, and may come in response to the low yields available in domestic fixed income markets,” Coxeter said.

Source: Mercer Asset Allocation Outlook 2022

Hong Kong investors made the largest equity allocation in the region at 67%. South Korea has the highest allocation to alternatives among all covered markets at 9.7%, although it has declined over this measurement period from 11.4% the year before. Conversely, India’s bond allocation is close to 89%.

In a bid to diversify portfolios, Asian investors are also showing continued interest in alternatives in a low rate environment as they seek opportunities outside of traditional asset classes.

Simon Coxter,


“The growing interest in various sub-segments of the alternative space is underpinned by a range of factors, including the search for higher yields, the desire to diversify away from traditional assets, and concerns about inflation,” he said. -he declares.

Although the limited granularity of publicly available pension portfolio data prevents it from drawing reliable conclusions, the search for yield is one of the forces driving Asian pension fund investors’ appetite for assets that ‘they may not have historically considered for their portfolios,’ Coxeter said.

“Anecdotally, some investors have demonstrated a willingness to explore new areas of fixed income opportunity sets and alternatives, such as multi-asset credit, secured funding and real assets,” said he declared.


Asian investors are also considering environmental, social and governance (ESG) risks when investing by pursuing the significant growth seen in ESG-oriented products on offer, as well as adopting guidelines and principles to govern these types of risks. investments.

Growing awareness of ESG risks, market reforms and government policies are pushing investors in Asia to adopt more sustainable investment practices, and the region is now leading Latin America, the Middle East and of Africa, according to Mercer.

However, greenwashing is still an issue in the area, Coxeter said.

“In the asset management industry, this is a concern for investors and regulators alike, and it is increasingly recognized that careful selection of managers is key to identifying successful managed investment strategies. actively that are genuinely aligned with investors’ beliefs and sustainable investing goals,” he said.

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