Australian pension funds most aggressive on alternatives – study

Allocations to real estate, hedge funds, private equity and commodities came to 26% in 2014, up from 10% a decade ago, Towers Watson's annual global pension assets study found. This compares to an increase from 16% to 29% for US pension funds, 16% to 28% in Switzerland, 13% to 22% in Canada and 7% to 15% in the UK.

Japan and the Netherlands have been more conservative, with the former going from 2% in 2004 to 7% in 2014, while the latter has gained only one percentage point on its 2004 allocation of 13%. In both markets, bond exposure continues to be above 50%, while the other larger markets are all below this threshold, with Australia on just 15%.

The study, which covers 16 leading pension jurisdictions, found that total assets grew by 6.1% in 2014 to $36.1 trillion. This is lower than the 10% expansion seen in 2013 but it continues an run of consecutive increases dating back five years, before which the global financial crisis led to a 22% decline in 2008.

Within Asia, Australia's pension fund assets stood at $1.67 trillion at the end of 2014 - up from $553 billion in 2004 - with Hong Kong on $120 billion, Japan on $2.86 trillion, Malaysia on $205 billion, and South Korea on $511 billion.

Australia remains by some distance the largest major market for defined contribution (DC) pension schemes; they account for 85% of pension assets, compared to 58% in the US, 29% in the UK and 3% in Japan. DC plans differ from defined benefit (DB) plans in that responsibility for the pension lies with the employee, not the employer.

Broadly speaking, DC plans are perceived as a challenge for private equity: they are more portable, more subject to the whims of the individuals they serve, and more inclined to invest in liquid assets.

In the seven largest pension fund markets (excluding Switzerland) over the last 10 years DC assets have grown at a rate of 7% per annum while DB assets have grown at a 4.3% per annum. DC assets account for 46.7% of all pension fund assets.

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