- Mercer report uncovers asset allocation
and investment trends on nearly US$5 trillion1 in assets under
management (AUM) from government, corporate, and mandatory pension
schemes across Latin America, the Middle East, Africa, and
Asia.
- Indonesia’s corporate pension system
sees employers executing a conservative slant to fixed income and
cash/short-term assets.
- Other investors in Indonesia including
institutions and retail investors are similarly decreasing
allocations in equity and increasing fixed income and cash.
- Globally, exposure to equities has been
increasing since 2017 – equity allocations rose approximately 8%,
from 32% to 40%, at the expense of fixed income.
- Market liberalization is enabling more
diversified portfolios through increased exposure to foreign assets
at the expense of domestic assets.
Mercer, a global consulting leader in advancing health, wealth
and careers, and a wholly owned subsidiary of Marsh & McLennan
Companies (NYSE: MMC) launches its inaugural issue of Growth
Markets Asset Allocation Trends: Evolving Landscape, a report that
provides insights on the asset allocation and investment trends
impacting pension fund assets of almost US$5 trillion in AUM across
Latin America, the Middle East, Africa, and Asia.
Mercer’s report noted significant variation in broad asset
allocation among countries, driven by regulatory factors as well as
market conditions, such as high levels of local interest rates
supporting investment in domestic fixed income and cash.
Of the AUM analyzed, 56 per cent of assets were from corporate
and government pension schemes in Asia. Assets from Japan were
particularly significant with the funded government pension system
in Japan being the largest in the world with US $1.5 trillion in
assets.
Globally, average allocations were 46% to fixed income, 40% to
equities, 4% to alternatives and 10% to cash/other. This
positioning represents an increase in equity and a decline in fixed
income over the measurement period, from 32% and 57%, respectively.
Significant home biases remain, but Mercer expects the trend of
market liberalization to continue as regulatory changes support
broader global investment.
In addition to an increase in overall equity exposure, Mercer
also noted an increase in foreign assets relative to domestic
assets. As a portion of the overall equity portfolio, average
foreign exposure increased from 45% to 49%, with
even-more-pronounced movements in fixed income, where foreign
exposure moved from 16% to 23%. This shift was notable in Japan,
South Korea, Malaysia and Taiwan as investors sought greater
geographic diversification.
Fiona Dunsire, Mercer’s Wealth Leader for Growth Markets
commented, “Investors across Latin America, the Middle East, Africa
and Asia are faced with a number of challenges: they seek to
achieve better investment outcomes, but in many cases also face
regulatory restrictions on the amount of assets they can invest
outside their home country, all while addressing ongoing political,
economic and demographic shifts.”
She continued, “As investors diversify their portfolios
globally, they need to assess how to access the best investment
opportunities, and at the right cost.”
Janet Li, Mercer’s Wealth Leader for Asia, said many countries
in Asia were seeing evolvements and imminent changes in their
pension systems.
“Like other growth markets, Asia is seeing pension reviews and
reforms with both the establishment of new and enhanced pensions
systems, and a general shift towards defined contributions, away
from defined benefit plans,” Ms Li said.
“With more than half of the world’s middle-class residing in
Asia and evolvements in pension structure and delivery, effective
investment solutions are essential to meeting the future needs of
Asia’s ageing societies,” she said.
Regional Breakdown
Asia
Within Asia, we observed materially different allocations from
one country to the next. In Thailand and Indonesia, high fixed
income and cash balances are prevalent (Thailand’s fixed income
allocation was 73%, while Indonesia’s cash balance totaled 45%).
Conversely, Hong Kong’s equity allocation of 66% was the highest in
Asia, driven largely by Mandatory Provident Fund elections to
lifestyle and standalone equity funds. Japan, South Korea,
Malaysia, and Taiwan fell in the middle, each holding between
38%-44% equity. South Korea (11%) and Taiwan (9%) had the largest
exposures to alternatives.
Japan (+13%) and South Korea (+8%) posted material increases in
their equity portfolios over the period as they sought
opportunities to increase expected return. There was a notable
shift from domestic assets to foreign assets, particularly in
Japan, South Korea, Malaysia, and Taiwan, as investors sought
greater geographic diversification.
Notes to Editors
The survey reflects different reporting dates by source, though
all “current” sources are from 2017-2018 across Latin America, the
Middle East, Africa and Asia. 14 jurisdictions are represented in
the report data (Argentina, Brazil, Chile, Colombia, Mexico, Peru,
South Africa, Hong Kong, Indonesia, Japan, South Korea, Malaysia,
Taiwan and Thailand). Prior data comparisons are generally five
years prior to the date of the “current” source, but again varies
based upon data availability.
Aggregated data was compiled on an asset-weighted basis;
therefore, investors with large asset bases skew the data results
more so than a smaller investor. Information contained herein has
been obtained from a range of third-party sources. Although the
information is believed to be reliable, Mercer has not sought to
verify it independently.
About Mercer
Mercer delivers advice and technology-driven solutions that help
organizations meet the health, wealth and career needs of a
changing workforce. Mercer’s more than 23,000 employees are based
in 44 countries and the firm operates in over 130 countries. Mercer
is a wholly owned subsidiary of Marsh & McLennan Companies
(NYSE: MMC), the leading global professional services firm in the
areas of risk, strategy and people. With 75,000 colleagues and
annualized revenue approaching $17 billion through its
market-leading companies including Marsh, Guy Carpenter and Oliver
Wyman, Marsh & McLennan helps clients navigate an increasingly
dynamic and complex environment. For more information, visit
www.mercer.com. Follow Mercer on Twitter @Mercer.
1 Data as of the most recent date available for each country;
please consult the full report for details.
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version on businesswire.com: https://www.businesswire.com/news/home/20190611006072/en/
Yumeko Leung+61 447 042 101yumeko.leung@mercer.com
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