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Sep 20, 2015

Pension funds seek higher returns with investment abroad

Investment in foreign countries by OECD pension funds rises to 31 percent of total from 25 percent in six years

Pension funds in developed nations are boosting investments outside their home countries as they are forced to seek greater yield to compensate for a rising number of retirees and low interest rates, according to research by the Association of the Luxembourg Fund Industry (ALFI).

Investment in foreign countries by pension funds in countries belonging to the Organization for Economic Co-operation and Development (OECD), excluding the US, jumped to 31 percent of their total investments last year, up from 25 percent in 2008, according to the ALFI report, compiled in conjunction with PwC Luxembourg.

‘The new millennium has changed the playing field for pension funds,’ says Dariush Yazdani, a partner at PwC Luxembourg and leader of its Market Research Centre, in a press release. ‘There are significantly more people retiring today than even a decade ago and this is putting pressure on pension funds’ investment strategies.’

The report also shows wide-ranging differences in pension fund strategies and returns based on the funds’ home region. Funds in the US and Canada are devoting 48 percent of their investments to equities while the figure is 40 percent in the Asia-Pacific region, 37 percent in Europe and 34 percent in South America.

Globally, pension funds made 44 percent of their investments in equities, 28 percent in bonds, 24 percent in alternative investments and 2 percent in money market products last year, the study shows.

US pension funds led equity investments with a total of $12 tn devoted to equities, followed by Canada with $986 bn, Japan with $662 bn and the Netherlands with $582 bn, the report concludes. Between 2008 and 2014, Japanese pension funds increased their investment in equities the most, with investment rising by 21 percent. Over the same period, South Korean pension funds cut equity investments the most, with a drop of 22 percent.