Global pension schemes increased allocations to alternative assets by a fifth over the last 20 years, research has found.
Willis Towers Watson’s Global Pension Assets Study found allocations to alternative assets – especially real estate and to a lesser extent hedge funds, private equity and commodities – in the larger pension markets had grown from 5% in 1995 to 24% in 2015.
The study of the 19 major pension markets across the globe revealed Canadian schemes allocated the most to alternatives over the period jumping from 14% to 27%, followed by the UK (7% to 18%), Switzerland (18% to 29%), US (17% to 27%) and Japan (from 3% to 9%).
However, schemes decreased their domestic equity allocations with weightings falling on average from 65% in 1998 to 43% in 2015. In the UK, exposure to domestic equities has more than halved, to 35%, since 1998.
Willis Towers Watson global head of investment content Roger Urwin added: “Asset diversification into alternatives and the shift away from domestic equities, have gained momentum among pension funds around the world, as these strategies have helped to manage risk. The persistent economic uncertainty is likely to reinforce these shifts. 2016 has started with highly volatile conditions and some material falls in value in January have reflected the uncertainty around global growth overlaid with geo-political challenges.
“The challenges of pension funds worldwide have been severe and onerous for more than a decade with no signs of respite. The success formula remains being tough on risk and being smart on governance.”
