ASIA-PACIFIC - The governance and investment policies of pension reserve funds across the region have entered into a period of transition which would likely have a profound impact on global financial markets, Allianz Global Investors has said.
Allianz also found the funds, which displayed characteristics similar to sovereign wealth funds (SWFs), were increasingly outsourcing asset management to external managers, meeting the goal of greater diversification and increasing professionalisation in governance structures.
Alexander Boersch, senior pensions analyst, Allianz, said: "Demographic developments require investment in higher yielding assets. Given the ageing population, the capital of reserve funds is an important factor in smoothing contributions.
"The more efficient the risk-return profile, the less the burden on the public pension system. This implies the need for diversification of assets between asset classes and internationally."
The report said the funds had shifted away from conservative investments and politically motivated infrastructure or public-development investments but added there was a need for clear independence between the reserve funds and governments to avoid a SWF-style backlash.
It also stated the funds' sizes could potentially move markets and impact on the economic environment, making sophisticated investment plans a vital part of their activities.
It added the sheer size and societal impact of reserve funds would bring issues such as the internal governance, level of political influence and transparency into the spotlight, making solid governance structures all the more important.
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