The world’s pension funds are growing as an ageing population puts more money aside to pay for retirement. The global total has doubled in the past decade to almost $57 trillion. But the biggest pool of savings risks missing out on both diversification and returns by restricting its investments to its domestic markets.
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U.S.-based pension funds are the biggest in the world with about $35 trillion of assets, according to a study just released by consultants Willis Towers Watson Plc. That’s almost 10 times the size of second-placed U.K. with $3.86 trillion and Japan’s $3.7 trillion, according to the report. Canada, Australia, the Netherlands and Switzerland round out the global top seven for a combined total of $52 trillion.
In the past 20 years, those pension funds have altered their asset mix. The role of equities has diminished, dropping to 45% of holdings last year from more than 60% in 2001, the study says. Alternative assets, including real estate, have grown to account for about a fifth of investments, up from 5% two decades ago.
But those U.S. investors remain stubbornly addicted to domestic securities. More than 60% of their equity holdings are in their home market, a figure that’s remained pretty constant for the past decade. By contrast, the average domestic exposure in the top seven pension markets is below 38%, and has almost halved since 2001.
Read the full article here by Mark Gilbert, Advisor Perspectives
