Allocations to alternative assets increase

Willis Towers Watson (a International risk management and financial advisory business) have recently published their "Global Pension Assets Study 2016".   While the title may encourage you to yawn (!!!) the content is interesting for investors and advisers - particularly around changes in asset  allocation.

The study focuses on 7 countries (Australia, Canada, Japan, Netherlands, Switzerland, US and UK) which account for about US$33 trillion of pension assets.  Average allocations at the end of 2015 are 44% equities, 29% bonds, 24% other/alternatives and 3% cash.  The other/alternatives category includes real estate, commodities and hedge funds.

Not only is the 24% to alternatives high (from a NZ perspective) but the trend has been for a  significant allocation increase over time.  The chart below shows the allocation to alternatives (in pink) increasing from 7% to 24% (+17%) since 1996 while equities (purple) fall from 52% to 44% (-8%).   Cash is in green (consistently a small allocation) while bonds are in orange (allocation falls 36% to 29% over the 19 year period).  NZ portfolio allocations to alternatives are typically no where near 24% - but is this something we will slowly move towards in the future?

Pension fund allocations to cash, alternatives, bonds and equities from 1996 to 2015 (source:  Willis Towers Watson)

Pension fund allocations to cash, alternatives, bonds and equities from 1996 to 2015 (source:  Willis Towers Watson)

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