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Pension Plans Continue To Increase Alternative Investment Allocations

A recent report commissioned by the Association of the Luxembourg Fund Industry (ALFI), and conducted by PwC shows pension fund's allocations to alternative investments like hedge funds and private equity funds has risen from $9.2trn 5 years ago to $11.6trn at the end of 2018.

North American pension funds had the largest allocations to alternative investments at an average of 31%, according to the study. European pension funds followed closely behind at 27%, and Asia Pacific at 8%. Latin America was the laggard at 5%. The global figure was 27%, up only slightly from 26% in 2014.

The research highlighted Asian pension fund specifically for their increasing allocations towards alternative investments. The Government Pension Investment Fund (GPIF) of Japan now allocates $4bn to alternative investments; more than 50% of Japanese pension funds now allocate to these products, compared to only 12.8% in 2014. The National Pension Service in Korea allocated 12.8% of its assets to alternatives in 2018, up from 4% in 2008. Illiquid products are seeing most interest.

"Asian pension funds tend to be more conservative than those in developed markets, but this is changing as investors in the region struggle to meet the expected performance targets and are looking for ways to yield higher returns", says the report. "Pension funds in the region are looking for ways to improve their long-term investments by increasing their asset allocation in illiquid assets such as private equity, real estate, and infrastructure."


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