Almost half of the world’s public pension fund assets are located in equities, real assets and private equity, according to a report released today by OMFIF, the forum for economic policy-makers and financial markets.
The inaugural edition of Global Public Pensions builds on the seven-year track record of OMFIF’s benchmark Global Public Investor annual report and aggregates the portfolios of 100 leading global public pension funds.
In total, global public pensions have more than $17tn of assets under management – more than twice as much as sovereign funds, according to OMFIF research. This new report captures 77% of those investable assets.
The research reveals that:
- Public pensions are continuing their long-term shift away from fixed income into equities and alternatives, based on a sample of 100 asset allocations making up 77% of investor group assets
- Listed equities now make up 33% weighted average of total assets; real assets and private equity are at 7.7% and 5.4% respectively
- Only 42% of public pension fund assets remain in fixed income instruments on a weighted average basis. The median portfolio holds only 25% of assets in fixed income
- The average actuarial return target among sample has decreased in 2015-19 but remains higher than returns. Most of the decline comes from revised inflation assumptions.
The report features analysis from decision-makers in state pension funds from across Europe, Asia and North America. OMFIF describes how these institutions are ‘at the intersection of demographic change, technological upheaval, and tumultuous investment landscape’.
The study explores key emerging themes in the global public pension community. It examines changes in demographic projections, linking them to investment strategy in accumulation and decumulation phases. The publication also looks closely at private equity, and how pension funds have used their influence to promote sustainable private investments.
‘Public pension funds are faced with a challenging transformation given recent trends and the movement in population, interest rates and fiscal constraints due to the Covid crisis,’ said Julie Monaco, managing director & global head for public sector, banking, capital markets and advisory division, Citi. ‘OMFIF’s Global Public Pension report helps us further understand these challenges and guide our focus to offer the best solutions for our clients, helping them to navigate through these uncertain times.’
The rise in listed equity holdings has prompted some public pension funds to become more responsible, active owners. Corporate governance is becoming a crucial issue for these funds. The report sketches some recent developments, new strategies, and best practice approaches in the area.
‘Listed equities keep rising as a share of public pension fund portfolios, standing at almost 33% on average as fixed income yields remain stubbornly low. This grants them some respite from funding pressures and actuarial assumptions. But they raise new responsibilities around sustainability and corporate governance which may precipitate a surge in shareholder activism,’ said Pierre Ortlieb, economist at OMFIF.