Pension funds have been adding moderate risks to their portfolios and venturing into foreign markets to address their asset-liability management, while investor education continues to be a key priority in establishing the third pillar, as managers and distributors work to gain expertise and build track records in the retail retirement arena. These are some of the findings from Cerulli Associates’ newly released report, Asian Retirement Markets 2021: Moving Forward with Resilience.

Against the backdrop of low yields and macroeconomic headwinds, effective portfolio management with minimal risk is vital for pension funds to achieve their long-term goals. Given their obligation to generate stable payouts for retirees, fixed income is expected to continue to play a major role in estimating cash flows and providing liquidity, as pension funds diversify into the lower end of the credit curve. According to the research, 46% of respondents are likely to increase outsourcing of global and Asian high-yield bonds over the next 12 to 18 months.

Apart from alternative assets, environmental, social, and governance (ESG) investing is also on pension funds’ radars. Large funds, including the Japan’s Government Pension Investment Fund, Korea’s National Pension Service, and Australia’s superannuation funds, have adopted tools to address climate risks in their portfolios and issued ESG-specific mandates. “As pension funds are working to understand the theme and its incorporation across all asset classes, they are likely to explore managers’ expertise and infrastructure support to expand their ESG engagements,” said Della Lin, a senior analyst at Cerulli. “Expectations of managers to consider ESG risks in their mandates and conduct knowledge transfer are only going to rise.”

On the retail front, constant education and campaign efforts by managers and distributors have lifted retail awareness on retirement planning amid changing life circumstances in the post-pandemic era. Going forward, managers in Asia are looking to actively continue these engagements. In addition to ensuring that the right messages are relayed to retail investors via digital tools, choosing the right distributors to reach out to the mass retail segment is equally important. Traditional channels, including life insurers and banks, are regarded as the most effective in reaching out to older investors across Asian markets.

With online platforms gaining a following among younger investors, Asian distributors are developing and upgrading their digital tools to assist their clients with their retirement planning. “Although time is needed for young investors to fully utilize digital channels to invest in retirement products, these digital tools and outreach efforts will help retail investors understand their needs and where they fall short,” said Lin. “As managers and distributors gain expertise and build track records in the retirement arena, their credibility as product providers is likely to follow.”