Retirement assets in Asia ex-Japan saw a compound annual growth rate (CAGR) of 9.8% between 2017 and 2021, reaching total investable assets of US$4.6 trillion in 2021. Meanwhile, the percentage outsourced to managers saw steady growth from 30.6% in 2017 to 36.8% in 2021, mainly driven by an increase in overseas exposure, according to Cerulli’s latest report, Asian Retirement Markets 2022: Weaving Stable Safety Nets.

Since the pandemic, many public pensions have been compelled to rethink strategies on how to improve the sustainability and resilience of their funds to ensure the continuity of retirement security for their ageing members. As part of this larger trend, public pension funds are increasing their exposure to alternatives; foreign assets; and environmental, social, and governance (ESG) investments for greater portfolio diversification and more sustainable investment returns.

In 2021, alternatives accounted for 8.4% of total retirement assets in the Asia-ex-Japan region, the highest seen for that asset class in five years. The continued diversification towards alternatives and private assets is particularly seen in Australia, Korea, and Japan.

“There is scope for pension funds to explore investing in more sub-asset classes within alternatives as they seek to raise their allocations to alternative investments. For example, there are opportunities for managers to work with pensions for their private market strategies via specialist funds, co-investments, and co-underwriting for private equity,” said Shannen Wong, senior analyst at Cerulli.

Meanwhile, pension funds continue to increase their exposures to risk assets. Mixed assets and equities saw steady marketshare growth over the three years ending 2021, at the expense of bonds and cash allocation.

In addition, public pensions across various markets in the region continue to show their commitment to ESG investing, as part of their fiduciary duties. “Given that there are no uniform evaluation methods for ESG performance across different industries, ESG investing remains a challenge for most investors, and managers that can clearly lay out their approaches to tackle these challenges will stand out,” said Wong.